What credit score do you need for a home equity loan, HELOC?
If you're a homeowner who needs funds to finance home improvement projects, pay off debt or cover unexpected expenses, you may be considering a home equity loan or home equity line of credit (HELOC). These financial products allow you to borrow against the equity you have in your home, typically at interest rates that are markedly lower than you'll get with a credit card or personal loan.
However, qualifying for one of these products depends heavily on your credit score. Knowing what lenders are looking for can help you make the most of your home equity borrowing options.
Compare your home equity options online now to see what you're eligible to receive.
What credit score do you need for a home equity loan, HELOC?
You must meet certain requirements to get a home equity loan or HELOC, one of which is having a credit score at or above a certain level. Your score helps lenders determine how likely you are to pay them back. The lower your score, the less likely they are to lend to you. The higher your score, the more likely they are to lend to you.
Typically, lenders require a credit score of at least 620 to qualify for a home equity loan or HELOC. However, some lenders may require a higher score, such as 680 or 700, especially if you want to borrow a larger amount of money. That said, even if you qualify with a lower score, you'll likely have a higher interest rate than you would if your score is 700 or higher.
Keep in mind that your credit score is just one of the factors lenders consider when approving you for a home equity loan or HELOC. So, even if you have a good score, you may still be denied if you have a high debt-to-income ratio or insufficient home equity.
See how much you can borrow — check out today's home equity rates here.
How to boost your credit score
If your credit score is lower than you need to qualify for a home equity loan or HELOC there are steps you can take to boost your score. They include:
- Pay down your debt: One of the facts that determine your credit score is your credit utilization ratio, or how much credit you're using compared to your credit limit. By paying down your balances, you raise this ratio and look more appealing to lenders.
- Make your payments on time: Payment history also impacts your score. Always make your credit payments on time. Setting up automatic payments or calendar reminders can be helpful.
- Have your rent and utility payments counted: On-time rent and utility payments usually aren't counted in your credit score. But if you sign up for Experian Boost, they will be. This can help if you have a limited credit history.
- Check your credit report for errors: Mistakes on your credit report can harm your score, so it's important to review your credit report regularly. If you notice anything that doesn't seem right, contact your creditor to resolve it.
- Don't open too many new accounts at once: Don't apply for credit too often in a short period. Applying for credit frequently can lower your score as it indicates to lenders that you might be having trouble managing your finances.
Begin your home equity borrowing search by viewing current rates here.
The bottom line
If you're interested in taking out a home equity loan or HELOC, it's important to know your credit score and understand how lenders will evaluate it. While you may be able to qualify with a credit score as low as 620, it's generally best to have a score of 680 or higher to improve your chances of approval and get the best interest rates. If your score is low, work on improving it so you'll have a stronger application.
Also, remember to consider the other factors that lenders will look at, such as your debt-to-income ratio and home equity amount. With a good credit score and a solid financial history, you can use your home's equity to its full advantage.
