How to get a HELOC with a 650 credit score

Home equity lines of credit, or HELOCs as they’re known, can be a powerful tool for homeowners to finance large expenses for an affordable cost. In order to get a HELOC, you’ll need to meet certain lender qualifications. 

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Typically, this includes having a certain amount of equity in your home, sufficient income to make your monthly payments, and — a big one — a good credit score. Most lenders prefer a credit score of 720 or higher in order to get a HELOC, yet a third of Americans have a credit score of 650 or less. 

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Having a 650 credit score may pose a speed bump when it comes to getting a HELOC, but it’s not a stop sign. There are plenty of things you can do to still get your HELOC application approved, and if not, you have a lot of alternatives available.

Can you get a HELOC with a 650 credit score?

Yes, it’s still possible to get a HELOC with a 650 credit score. In fact, about 15% of new HELOCs went to borrowers with credit scores of 659 or less in 2023, according to data from Equifax. Most borrowers, however, had a credit score of 780 or higher. 

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This aligns with the common advice that lenders prefer applicants with credit scores of 720 or higher, but that it’s still possible to get approved with a lower credit score — if you’re willing to accept a few sacrifices and work a little harder. We’ll get into that next. 

How to get a HELOC with a 650 credit score

Qualifying for a home equity line of credit is possible even if your credit score is 650 or less. Plenty of people do it every year. We’ll run through your options for how to get it done. 

Evaluate your financial situation 

You can overcome a lower credit score by boosting your HELOC qualifications in other areas. First, it helps to know the other common requirements for a home equity line of credit:

• Income: Having a stable paycheck or a high income can help. It may be harder to qualify if you’re self-employed, particularly if you’re a new business owner. 
• Home equity: You’ll typically need at least 20% equity in your home. If you have a paid-off mortgage (or a mostly paid-off mortgage), it may be easier to qualify. 
• Credit history: In addition to your credit score, lenders will check your credit history for any recent bankruptcies, late payments, etc. Having a clean record can help. 
• Debt-to-income (DTI) ratio: Lenders prefer that no more than 43% of your gross income be taken up by other minimum debt payments, including your mortgage, any credit cards, etc. 

Take a few minutes to go over your details in each of these areas. We’ll work on improving them next. 

Improve where you can

Each of the different factors that lenders look at offers a potential avenue for strengthening your own application — and indeed, even your overall financial situation. Here’s a list of some actionable steps you can take to increase your odds of approval. Most people aren’t able to do all of these things, but take from it what you can:

• Create a budget: This can help you identify expenses you can cut so that you can put more money toward paying down your debt, saving up an emergency fund, and ensuring you’re able to pay your bills on time — all things that can help with boosting your credit score.
• Increase your income: This can help you in three ways: by lowering your DTI ratio, by demonstrating more financial stability, and by being able to afford a larger payment. You can do this by getting a part-time job, taking on a side hustle, asking for a raise at work, or switching to a new job or even a career. 
• Pay down credit cards: Paying down any debt can help, but especially credit card debt. This type of debt factors into your credit score more heavily, so when you pay any amount down, it has a larger impact compared to things like installment loans. Plus, it’ll help you save a lot of money in interest. 
• Check your credit report: It’s possible that you actually do have a higher credit score, but errors are unfortunately common. You can request a free copy of your credit report from each of the three credit bureaus, check it for errors, and dispute any that you find. 

Shop around and prequalify

Most lenders require a credit score over 720, but most lenders doesn’t mean all lenders. Plenty of lenders are willing to approve your HELOC application if your credit score is only 650, as long as you meet other underwriting criteria and are willing to pay a higher interest rate. For example, the online lenders Figure and Rate both require a minimum credit score of 640 or higher — which may be an option if your credit score is 650. 

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Thus, it pays to shop around and check your rate with multiple lenders. Most HELOC lenders don’t list their minimum credit score requirements on their webpage, but you can always try asking or at least getting prequalified. 

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If you can, try to look for lenders who do soft credit pulls to check your potential rates since this won’t drive your credit score down further. It’s also a good idea to get all of your rate shopping done within a two-week period just in case they perform any hard credit checks. This can limit any potential credit damage because all credit inquiries in this time frame are rolled into one single entry.

Apply for the loan

When applying for a HELOC, especially if you have bad credit, it's crucial to be as thorough as possible.

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You'll want to gather all necessary financial documents upfront, such as proof of income, tax returns, and details of any existing debts. If you have alternative sources of income, like disability benefits or a side job, be sure to include these in your application. Consider enlisting a co-signer with stronger credit to improve your chances of approval. 

Receive your funds

After your HELOC application is approved and you’ve completed the closing process, you’ll be able to access your revolving line of credit. You can access the funds through checks, a credit card linked to the account, or direct transfers to your bank. The flexibility of a HELOC means you can borrow what you need when you need it—without having to take out the entire loan amount at once. 

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During the draw period, which usually lasts 5 to 10 years, you’ll make interest-only payments on the amount you’ve borrowed. Once the draw period ends, you’ll enter the repayment phase, paying back the principal and interest monthly. 

Look into HELOC alternatives

A HELOC isn’t the only option available if you need to borrow money. It’s worth comparing similar options, such as home equity investments, which may be possible to get with credit scores even lower than 650. 

Personal loans

These unsecured loans offer a higher fixed interest rate, lump sum funding, and faster financing than HELOCs. Many lenders offer personal loans for people with bad credit scores—far lower than 650, although you may pay a much higher rate. 

Home equity loans

These are similar to personal loans, but they’re tied to your home equity like a HELOC. Thus, they offer lower rates and predictable payments over the loan’s term. Many lenders offer home equity loans for bad credit, similar to HELOCs.

Home equity investments (HEIs)

These non-debt options allow you to share a portion of your home’s future equity and may only require a credit score of 500 or higher. You’ll repay the HEI in one lump sum in 30 years or when you sell your home. There are no monthly payments and no income requirements. 

Cash-out refinances

These options allow you to refinance your mortgage for a larger loan amount. The excess funds are paid to you in cash, similar to a home equity loan, except that you replace your entire mortgage too.

Reverse mortgages

These loans allow borrowers aged 62 or older to tap into their home equity for a single lump sum payout, monthly payments, or a line of credit. The loan is repaid when the homeowner moves out permanently, sells the home, or passes away. Reverse mortgages don’t have a minimum credit score requirement. However, you will need to prove you have enough income to cover ongoing home maintenance and property taxes. 

FAQ

What credit score do I need for a HELOC?

You’ll typically need a credit score of 720 or higher in order to get a HELOC, but that’s not always the case. A lender may still deny your application with a perfect credit score if you don’t match up with other requirements, and conversely, you can get approved with a lower credit score if you’re a stellar HELOC applicant in other ways. 

Are HELOCs hard to get?

Generally, about 45% of HELOC applications are approved, according to data from the Home Mortgage Disclosure Act. Your success depends on a lot of different factors, such as your credit score, debt levels, income, the amount of equity in your home, and more. 

Can you get denied for a HELOC loan?

Yes, lenders can deny your application for a HELOC or a home equity loan if they don’t feel comfortable with giving you the money. They cannot deny you based on certain other factors, however, like your race or age.

How does a 650 credit score impact HELOC interest rates?

With a 650 credit score, you'll typically face higher interest rates than borrowers with good to excellent credit. Lenders view borrowers with lower credit scores as higher risk and adjust their rates accordingly to offset that risk. While average HELOC interest rates currently range from 8.68% to 11.06%, you may find yourself offered a rate on the higher end of, or even above, this range. 

How much can I borrow with a HELOC if my credit score is 650?

The amount you can borrow depends on the lender's policies, home equity, and other financial factors. Generally, lenders allow you to borrow between 80% and 85% of your home's equity, but this may be lower with a 650 credit score.

What are the risks of getting a HELOC with a low credit score?

The main risks include higher interest rates, stricter repayment terms, and the potential for your home to be at risk if you default on the loan. It's essential to assess your financial situation and ensure you're ready to handle interest-only payments during the draw period and principal-plus-interest payments during the repayment period. 

Final thoughts

It’s quite possible to get a HELOC if your credit score is only 650, but you can expect a little bit more legwork in finding the right lender, as well as higher borrowing costs. 

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If you are successful, it’s even more important to make sure you’re keeping up with a budget and preparing for future payments. That’s because HELOCs charge variable interest rates, and your payment amount can change significantly between the draw and repayment periods — a swing that may be even larger if you’re already forced to pay higher rates. 

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Having the financial bandwidth to handle these larger payment swings can help ensure you come out of your HELOC with an even stronger credit score than when you started.

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