HELOC and FICO Score: What You Need to KnowHome equity lines of credit (HELOC) are a popular form of borrowing that allow homeowners to use the equity in their homes as collateral. Many people are attracted to the flexibility and convenience of HELOCs, which can be used for a range of purposes, including home improvements, debt consolidation, and emergency expenses. However, obtaining a HELOC can be challenging if you have a low FICO score. In this article, we’ll explore the minimum credit score requirements for HELOCs and what you can do to improve your chances of qualifying.
Credit Scores and Equity Loans: The BasicsBefore we dive into the specifics of HELOCs and FICO scores, let’s start with a brief overview of credit scores and equity loans. Credit scores are a numerical representation of your creditworthiness, based on your credit history and other factors. FICO scores, created by the Fair Isaac Corporation, are the most commonly used credit scores by lenders. Equity loans are a type of borrowing where you use the equity in your home as collateral. This means that if you default on the loan, the lender can take ownership of your home. There are two main types of equity loans: home equity loans and home equity lines of credit (HELOC). Home equity loans provide a lump sum of cash upfront, while HELOCs work like a credit card, allowing you to borrow money as needed up to a limit.
Understanding the Minimum FICO Score for HELOC EligibilityAs we mentioned earlier, FICO scores are one of the most important factors that lenders consider when determining your eligibility for a HELOC. In general, you’ll need a FICO score of at least 680 to qualify for a HELOC. However, some lenders may require a higher score, such as 720 or higher.
Can You Qualify for a HELOC With a Score Lower Than 680?While it may be more challenging to get a HELOC with a low credit score, it is still possible. Some lenders specialize in working with borrowers who have less-than-perfect credit. Additionally, if you have a high income or a substantial amount of equity in your home, it may be easier to qualify for a HELOC despite a lower credit score. Keep in mind, however, that you’ll likely pay a higher interest rate if you have a lower credit score. This is because lenders view you as a higher-risk borrower, so they need to charge more to offset that risk. Additionally, you may face more stringent repayment terms, such as a shorter repayment period or more frequent payments.
HELOC Lenders and FICO Score RequirementsEach lender has its own specific FICO score requirements for HELOC eligibility. Some lenders, for example, may be more willing to work with borrowers who have lower credit scores but a strong income or substantial equity in their homes. Other lenders may have strict minimum credit score requirements, regardless of other factors. It’s essential to shop around and compare lenders to find the best option for your specific situation. In addition to credit score requirements, you’ll want to consider interest rates, fees, repayment terms, and other factors when choosing a lender.
Tips for Improving Your FICO Score for HELOC EligibilityIf you’re interested in getting a HELOC but your credit score is holding you back, there are steps you can take to improve your FICO score. Here are some tips:
- Pay your bills on time: Late or missed payments can have a significant negative impact on your credit score.
- Reduce your credit utilization: Try to keep your credit card balances below 30% of your available credit limit.
- Check your credit report: Make sure there are no errors on your credit report that could be hurting your score.
- Don’t open too many new accounts: Opening several new credit accounts at once can lower your score.
- Keep old accounts open: Closing old credit accounts can shorten your credit history and lower your score.