zig zag thread arrows referencing concept of bad credit

How To Get a Home Equity Loan With Bad Credit


What You Need To Know

  • Your credit doesn’t have to be perfect to get a home equity loan
  • Bad credit isn’t the end of your home equity loan story, but it may delay the happy ending
  • Debt isn’t all bad. After all, paying off debt is how you build good credit


So you made it over the hurdle of owning a home, but, of course, something happens and now you need some extra cash to make repairs or updates.

Obviously, you look to the hard-earned equity you’ve built up on your house. But there’s a minor roadblock keeping you from tapping into it: your credit score.

Can you still get a home equity loan with bad credit? Well, maybe. It just depends on how bad your credit really is. In fact, if you have bad credit and you own a home, getting a home equity loan may be easier than securing a personal loan.

Slow your roll now!

You still need to qualify for a home equity loan, and you may need to improve your credit first to get one. Debt impacts your credit score. And if you’re swimming in it, you’ll have pay that down before you can get a home equity loan.

This probably means sacrificing some fun, but it could be worth it in the end.

3 Qualifiers for Home Equity Loans

These three qualifiers can indicate whether you may be able to secure a home equity loan:

  • Your debt-to-income (DTI) ratio is 43% or less
  • You maintain a credit score higher than 620
  • You own about 20% of your home

Yeah, that was a lot. Don’t worry. We’ll break down what all of this actually means.

What Is My DTI?

Your DTI helps lenders get a look at how you manage your money. Essentially, it adds up all of your fixed monthly debts, like your minimum credit card payments, personal loan payments, student loan payments, auto payments and current mortgage payments. Then you take that result and divide it by your monthly income.

Use our DTI calculator to see where you fall:

Debt-to-Income Calculator

Itemize Debt for Most Accurate Result
Your debt-to-income ratio…

❓   Curious what your debt-to-income (DTI) ratio is? Enter your figures and let the magic begin!

What Is DTI?

🟢   On Track – Hey money maestro! You’re right on track for your house-buying journey! Make sure you have all the information you need to make the right choice.

How much can I afford?

🟢   On Track – You’re right on track for your house-buying journey!

How much can I afford?

🚨   Above Recommended DTI – Some lenders have different requirements to qualify but it’s worth looking into your credit and finding out what you can afford within your budget.

What Is DTI?

🚨   Too Much Debt – Seems like you’ve got a little too much debt to qualify with the income you’ve put in! Do you want to try again?

How’d you do? Ideally, lenders want that number to be 36% or less, though they may be able to accommodate you with a DTI of 45% if you have good credit. Anything above 50% will be a big red flag.

What Is the Minimum Credit Score for a Home Equity Loan?

According to Experian™, a credit score under 670 is a bad credit score. Now, we won’t tell you ours, so don’t tell us yours.

The good news is that a score slightly below 670 may not hold you back from getting a home equity loan. But, like it or not, your credit score is a solid indication of your financial stability.

Banks let people take out home equity loans because the risk is on the homeowner, not on them. You can’t make your monthly payment? The bank gets your house. That’s called foreclosure, and it’s definitely not fun.

If you manage to take out a home equity loan with a low credit score, your interest rate will be high, which will lead to higher monthly payments. A home equity loan is probably better and more flexible than credit card payments, but still.

What the Heck Is Home Equity Anyway?

If you own a home and you still need to ask what home equity is, we are not here to judge.

Long story short: Equity is the difference between what your home is worth and how much you have left to pay on your mortgage (aka the amount of money you’ve already paid toward your home).

Your home equity grows as your home value increases and you slowly pay off the mortgage.

Most banks prefer that you own about 20% of your home before applying for a home equity loan. No cookies until after dinner, get it?

Steps To Improve Your Credit Score

Tricky credit scores are pretty common. According to Experian™, 30% of Americans have a “poor” credit rating. And yet, some of those people have managed to get loans.

Here’s the thing, you don’t want to let your bad credit score psych you out. Maybe your score is good enough or maybe you just need a strategy to boost your credit.

Here are two things you can do to improve your credit score:

  • Call the credit card company. See if they can work out a payment plan with you. Don’t be afraid to ask for help.
  • Check out our guide to improving your credit score. You’re welcome.

In Case You Missed It


  1. Don’t panic or feel ashamed. Bad credit isn’t permanent
  2. Take action to turn your bad credit situation around
  3. Consult a lender and be honest about bad credit. Learn what you need to do to qualify

You Should Also Check Out…