You can get a home equity loan with bad credit, but you’ll need to meet stricter requirements on equity, debt, and income to compensate for a lower score. Most mainstream lenders set their minimum credit score at 680, but some accept scores as low as 620 or even below 600 if your other financial factors are strong enough. The key is understanding what lenders look for beyond your credit score and positioning your application to highlight those strengths.
What Credit Score You Actually Need
There’s no single cutoff that applies everywhere. Most lenders require a credit score of at least 680 for a home equity loan, but a growing number of banks, credit unions, and online lenders have dropped their minimums to 620 or 640. A few will consider scores below 600 as long as you have substantial equity, low debt, and reliable income.
If your score falls in the 620 to 659 range, you have realistic options, though fewer lenders to choose from and higher interest rates to expect. Below 620, the pool shrinks further, but it doesn’t disappear. The practical difference between a 640 and a 720 credit score on a home equity loan can be one to three percentage points in interest rate, which on a $50,000 loan over 15 years could mean tens of thousands of dollars in extra interest.
Equity and Loan-to-Value Limits
Your equity is the difference between what your home is worth and what you still owe on your mortgage. Lenders express this as a loan-to-value ratio (LTV), which combines your existing mortgage balance and the new home equity loan, then divides by your home’s appraised value. Most lenders cap total LTV at 85% to 90%, meaning you need to keep at least 10% to 15% equity in the home after borrowing.
With bad credit, having more equity significantly improves your odds. If your home is worth $350,000 and you owe $200,000 on your mortgage, you have roughly $150,000 in equity. At an 85% LTV cap, you could borrow up to about $97,500. But a lender working with a lower credit score may limit you to a lower LTV, say 80%, reducing your maximum to around $80,000. The more equity you bring to the table, the less risk the lender takes on, which makes your credit score less of a dealbreaker.
You generally need at least 15% to 20% equity in your home just to qualify. If you bought recently or your home’s value has dropped, you may not have enough equity to borrow against regardless of your credit.
How Debt-to-Income Ratio Affects Approval
Your debt-to-income ratio (DTI) measures how much of your gross monthly income goes toward debt payments, including your mortgage, car loans, credit cards, student loans, and the proposed home equity loan payment. Most lenders want a DTI below 43%, though some stretch to 50% for borrowers who are strong in other areas.
When your credit score is low, a low DTI becomes one of your best compensating factors. If you earn $7,000 a month and your total debt payments (including the new loan) would be $2,500, your DTI is about 36%, which is well within the comfort zone for most lenders. Paying down credit card balances or a car loan before applying can lower your DTI and meaningfully improve your chances.
Lenders That Accept Lower Scores
Not all lenders have the same underwriting standards. Credit unions tend to be more flexible than large national banks, and some online lenders specialize in borrowers with imperfect credit. Among lenders that publicly list their minimums, several accept credit scores of 620 to 640 for home equity products. A few don’t disclose minimums at all and evaluate applications on a case-by-case basis.
Start by checking with your current mortgage lender or bank. Lenders you already have a relationship with can sometimes be more flexible because they have visibility into your account history, payment patterns, and overall financial behavior. A loan officer who knows your situation can also help present your application to underwriters in the strongest possible light.
Credit unions are worth exploring even if you’re not currently a member. Many have open membership requirements and offer home equity loans with lower credit score thresholds than traditional banks. Because credit unions are nonprofit institutions, they often charge lower rates and fees as well.
Strategies to Strengthen Your Application
Beyond shopping around, there are concrete steps you can take to improve your approval odds.
Write a letter of explanation. If your credit took a hit due to a specific event like a job loss, medical emergency, or divorce, write a brief letter explaining what happened and what has changed since. Keep it factual and straightforward. Include supporting documentation, such as proof of current employment if your score dropped during a period of unemployment. Lenders can take context into consideration during underwriting, and a clear explanation can make the difference between approval and denial.
Show stable employment and income. Lenders want to see that you can reliably make payments. Having at least two years of consistent employment history and steady or growing income helps offset credit concerns. Gather recent pay stubs, W-2s, and tax returns before you apply.
Demonstrate on-time mortgage payments. Even if your credit report shows late payments on credit cards or other accounts, a clean mortgage payment history carries significant weight. It signals to the lender that you prioritize your housing debt, which is exactly what they want to see when you’re borrowing against your home again.
Consider a co-borrower. Adding someone with stronger credit to your application can help, but there are important limits. The primary borrower still needs to meet the lender’s minimum credit score requirement. A co-borrower with excellent credit won’t override a score that falls below the lender’s floor. Also, the co-borrower takes on full legal responsibility for the debt. If you miss payments, their credit suffers too. This arrangement works best when both parties understand the risk and the primary borrower is close to the lender’s minimum but needs a boost on income or overall creditworthiness.
What to Expect on Rates and Costs
Borrowers with bad credit pay higher interest rates on home equity loans, sometimes substantially higher. Where a borrower with a 760 score might get a rate in the mid-to-high single digits, someone with a 640 score could see rates two to three percentage points higher. On a $40,000 loan with a 15-year term, that difference could add $100 or more to your monthly payment and $15,000 to $20,000 in total interest over the life of the loan.
Beyond the interest rate, watch for origination fees, appraisal costs, and closing costs. Some lenders waive certain fees to attract borrowers, while others roll them into the loan balance. Ask for a full breakdown of costs before committing, and compare loan estimates from at least two or three lenders. Rate shopping for home equity products within a short window (typically 14 to 45 days) counts as a single inquiry on your credit report, so it won’t hurt your score to compare offers.
Alternatives Worth Considering
If you can’t qualify for a traditional home equity loan, a home equity line of credit (HELOC) from a lender with lower minimums may work. HELOCs function like a revolving credit line secured by your home, letting you borrow as needed up to a set limit. Some lenders offer fixed-rate HELOCs, which give you the predictability of a fixed payment with the flexibility of a credit line.
A cash-out refinance replaces your existing mortgage with a larger one, giving you the difference in cash. This can work if current mortgage rates are close to your existing rate, but if rates have risen significantly since you got your mortgage, refinancing could mean a higher rate on your entire mortgage balance, not just the new amount you’re borrowing.
Personal loans are another option, though they come with higher interest rates since they’re unsecured. They don’t put your home at risk if you can’t repay, and some personal loan lenders accept credit scores in the 580 to 600 range. For smaller amounts, a personal loan may be simpler and faster, with funding in days rather than weeks.
Steps to Improve Your Score Before Applying
If your situation isn’t urgent, spending a few months improving your credit score before applying could save you thousands in interest or open the door to lenders with better terms. Paying down credit card balances to below 30% of your credit limit is one of the fastest ways to boost your score. Correcting errors on your credit report, which you can do for free through the three major credit bureaus, can also produce quick gains if inaccurate negative items are dragging your score down.
Even a 20 to 40 point improvement can move you into a better tier. Jumping from 620 to 660, for example, roughly doubles the number of lenders willing to work with you and can meaningfully reduce your rate. Pull your free credit reports, identify what’s hurting your score most, and target those items first.