Reviewed by
Can you get a home equity line of credit (HELOC) with bad credit?
The short answer is yes, but a low credit score makes it harder. At Clarify Capital, you need a minimum credit score of 620 to secure a HELOC in our lender network.
Clarify Capital's HELOC financing is designed for business owners who want to use home equity for business purposes. It offers up to $750,000, with rates as low as prime, a draw period of up to five years, and repayment terms of up to 30 years.
Your credit score is just a part of the application process. Lenders also consider your debt-to-income ratio (DTI), income, payment history, combined loan-to-value, and outstanding debt before making a decision.
I've spent my career helping small to midsize business owners secure financing, and below I'll cover how to set yourself up for success with a HELOC, even when you have less than perfect credit
| Credit score | How FICO classifies it | Rate impact |
|---|---|---|
| 300 to 579 | Poor | Higher borrowing risk |
| 580 to 669 | Fair | Higher than stronger-credit borrowers |
| 670 to 739 | Good | Better than fair credit |
| 740 to 799 | Very good | Stronger pricing |
| 800 to 850 | Exceptional | Strongest pricing |
What Credit Score Do You Need for a HELOC?
What makes HELOCs different from other types of business financing is that lenders also review your personal credit history.
There aren't minimum credit scores that apply to HELOCs. Instead, each lender establishes its own underwriting criteria and the score that it uses to approve a loan applicant.
To give you an idea of how lenders think about scores, FICO categorizes the quality of a given credit score into five categories. These include: poor, fair, good, very good, and exceptional.
While this gives you some guidance in terms of where your score stands, it isn't a simple yes or no answer. Having a FICO score of 650 or 700 doesn't necessarily mean you'll be approved for a HELOC. Lenders take into consideration the whole picture of your finances before approving.
Minimum Qualifications
For Financing Through Clarify Capital
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
What Matters Besides Your Credit Score?
The key elements that impact your approval odds for a HELOC are home equity and creditworthiness.
Equity represents the difference between your home's appraised value and what you owe on your existing mortgage. When you qualify for a HELOC, you're borrowing money from the equity you've built in your home.
Your credit history is the second piece. The same guidelines used to approve a first mortgage typically also apply to a HELOC. Some of these factors include:
Payment history. Your payment history shows how well you've managed other debt obligations. Any late payments, foreclosures, bankruptcies, high credit card balances or collections can impact your interest rate.
Income and repayment ability. Lenders want to make sure you make enough to cover the cost of the HELOC. They establish this by looking at your financial statements and tax returns.
Cash flow and business performance. Lenders want to know your business is generating enough cash flow to support an additional monthly payment. They look at your historical financial performance and project future financial results.
Lenders also consider how many hard inquiries you've had recently and your overall credit utilization, among other factors.
What Can Offset a Low Credit Score?
A low credit score doesn't automatically disqualify you from financing. Your application paints a full picture of your financial life. Think about it this way:
| Factor | What helps | What can hurt |
|---|---|---|
| Credit score | Higher score and clean recent history | Recent late payments, collections or major derogatory events |
| Equity | Lower existing mortgage balance relative to property value | High existing mortgage balance |
| DTI | Lower monthly debt compared with income | Large monthly debt obligations |
| Income | Stable, documented income | Irregular or difficult-to-document income |
| Payment history | Consistent on-time payments | Recent missed payments |
| Property | Qualifying property with sufficient value | Insufficient value or equity |
| Recent credit activity | Limited new applications | Many recent hard inquiries or new debt |
Our guide to building business credit has some other tips for improving your business credit score, like separating your personal and business bank accounts and monitoring your credit.
What If Your Bad Credit Came From Your Business?
HELOCs are largely approved based on your personal credit history.
In my experience, that can be a sticking point for some owners because their business is often the reason they have low credit in the first place. Maybe you personally guaranteed a business loan that went south or charged your personal credit cards for payroll when the business was struggling.
If you're in this situation, you may have more options through business financing, where decisions are based on your revenue instead of your individual credit score.
Your Home as Collateral
There's one real trade-off that comes with a HELOC, and it's that your home serves as collateral. Only consider a HELOC if you're confident that you can keep up the payments. If you fall behind, you could lose your home.
Before applying for a HELOC, review your small business cash flow to make sure the new payment fits.
Alternatives to a HELOC With Bad Credit
If you're below a lender's HELOC credit threshold, that doesn't mean you're out of options.
| Option | How does it work? | Trade-off |
|---|---|---|
| Home equity loan | A lump sum of money borrowed against home equity. | The amount of home equity used remains as collateral for the loan. |
| Cash-out refinance | Replaces the original mortgage with a new, larger one that allows for a cash-out component | Often requires refinancing of the entire mortgage, which could potentially increase its size or change the interest rate. |
| Personal loan | The lender makes a decision based on individual credit history and income | Fewer lending options are available to consumers who have poor credit |
| Short-term business loan | A lump sum of money that is paid back over a set repayment period | Shorter repayment periods compared to a HELOC |
| Business line of credit | A revolving credit line you can draw from, repay, and then draw again. Only pay interest on what you use | Approval depends on both personal and business finances |
If you're not ready for a loan yet, explore alternative financing options. These can help support your business until you're able to take on an additional payment.
Watch for Predatory Bad-Credit Offers
A low credit score can make you a target for bad actors. Be skeptical of any offer that uses phrases like “guaranteed approval” or “100% approval rate.” Here are some red flags to watch out for:
Guaranteed approval
Lenders can't give you guaranteed approval without looking over some kind of document. Ask what documents they're reviewing to approve your loan.
No credit check
No credit check should be an immediate red flag. Ask how they review your creditworthiness
Up-front fees
Get detailed information on what you'll be charged up front. Quotes shouldn't include a cost.
No APR disclosure
Lenders should always disclose the annual percentage rate (APR) or factor rate associated with your financing.
Pressure to sign
If a lender pressures you to sign without giving you ample time to review, it's a good chance it's a scam.
Very low payments
This is often where I see balloon payments pop up unexpectedly. Ask about the payment schedule before you sign
Unclear collateral terms
Ask which assets you could lose if you default
Don't just look at the monthly payment. Consider the interest rate, fees, draw period, repayment period, and minimum payment. Generally speaking, HELOCs are offered with variable interest rates. This means your payment could fluctuate depending on the current prime rate.
Getting a HELOC With Bad Credit
It's possible to get a HELOC with bad credit. But there's no magic strategy that guarantees approval. Higher credit scores help to unlock more competitive interest rates and repayment terms.
Clarify Capital's HELOC requires a personal credit score of 620 or better and extends up to $750,000 in available equity for qualified borrowers. If you don't meet Clarify Capital's requirements, you can still apply for other forms of business financing.
When you're ready to explore your options, apply today. Checking your options won't affect your credit score.
Frequently Asked Questions on Getting a HELOC With Bad Credit
Here are the most common questions I hear about getting a HELOC with bad credit.
Can You Get a HELOC Loan With a 500 Credit Score?
While possible, a 500 credit score will likely limit your options. There's no one-size-fits-all HELOC lending criteria. Credit scores under 620 fall into the fair credit and poor credit categories. If you're at 500, then your best option might be business funding that evaluates cash flow, revenue, equipment, or invoices and doesn't rely solely on your personal credit score.
What Is the Lowest Credit Score for a HELOC?
Lenders don't share the same minimums. Clarify Capital's HELOC has a minimum personal credit score of 620.
Is It Hard To Get a HELOC With Bad Credit?
Yes. Bad credit makes getting approved for a HELOC more difficult. But credit isn't the only factor lenders take into consideration. They also look at equity, DTI ratio, income, payment history, and the condition of the property.
Is 580 a Good Credit Score for a HELOC?
No, 580 to 669 is fair credit. Anything below 580 is classified as poor. A 580 credit score won't necessarily prevent you from getting a HELOC. All HELOCs are subject to individual lender qualifications.
Can I Get a HELOC With a 600 Credit Score?
Yes, some lenders consider applicants with 600 credit scores. Clarify Capital sets a minimum credit score of 620 for its HELOCs, but other types of business financing may be available to you based on the strength of your business's revenue.
Can I Use a HELOC To Fund My Business?
Yes. A HELOC can cover business costs, but the underlying lien securing the line is tied to your home. If your business fails to repay the HELOC, you could lose your home.
Is a HELOC Better Than a Business Loan?
Not necessarily. It depends on how you plan to use the funds and what you're comfortable putting up as collateral. I recommend examining all aspects of each loan, including total cost of borrowing, repayment terms, time-to-cash, collateral involved, and the level of risk associated with it before making a decision.
Can a HELOC Help Consolidate Credit Card Debt?
Yes. But consolidating debt simply relocates the debt. Using a HELOC to pay off multiple credit cards moves high-interest unsecured debt to secured debt against your home, which could save you money on interest payments over time. But this strategy shifts the risks if you fail to repay the HELOC.
Does a HELOC Have a Fixed Interest Rate?
Typically no. Most HELOCs have adjustable interest rates that change over time. Depending on the financing type, you may be able to convert portions or all of your outstanding principal balance to fixed rates during certain points in time.
How Long Does a HELOC Last?
HELOCs generally consist of a draw period and repayment period. During the draw period, you're able to draw on the available line. Once this period expires, you begin repaying the borrowed money and stop making new draws.
How Does Clarify Protect My Data?
Clarify Capital follows SOC 2 security principles when handling applicant information. You can learn more about its approach to protecting applicant data in our data security guide.
Bryan Gerson
Co-founder, Clarify
Bryan has personally arranged over $900 million in funding for businesses across trucking, restaurants, retail, construction, and healthcare. Since graduating from the University of Arizona in 2011, Bryan has spent his entire career in alternative finance, helping business owners secure capital when traditional banks turn them away. He specializes in bad credit funding, no doc lending, invoice factoring, and working capital solutions. More about the Clarify team →
Related Posts
