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Minimum Credit Score for Home Equity Loan

Homeowner checking his credit score before applying for a home equity loan

Home prices have soared over the past few years, giving homeowners access to more equity than ever before. For many, turning that home equity into cash means turning to a lender for a home equity loan or home equity line of credit (HELOC). But to do so, you’ll often have to meet a lender’s criteria to be eligible.

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What is the minimum score needed to use your home equity?

Having a minimum credit score is one of the eligibility requirements. But, what exactly is the lowest score you can have and still qualify for a home equity loan or line of credit?

The minimum credit score for a home equity loan or HELOC from even the most flexible lenders is set at 640, with very few exceptions to be made for lower scores. Anything lower puts you at risk of facing rejection from lenders when you apply for a loan.

What do I do if my score is above 640, but dropping?

If you’re struggling with high interest debt or plan to use your home equity to cover a large expense, keep a close eye on your credit score! If you find that your score is dropping and getting close to 660/680, then the time to act is now. Once your score drops too low, you can no longer access your home equity and will likely have to resort to more expensive sources of cash, like credit cards or personal loans. With that said, the interest rate charged on your loan will increase as your score decreases. So, although you may still qualify with a score in the mid-600 range, the loan will be more costly (ie: your monthly payments will be higher).

House Numbers is here to help. Sign up and get a a free credit report check, using just your phone number and birth date – no social security number and no impact to your credit score. Better than that, we’ll analyze all your current debts to help recommend the best option for you to access your home equity and save!

So, how are credit scores calculated, and what can you do to improve your odds of approval? Read on as we’ll dive into the different types of credit scores, how you can check your own score, how to improve it, and what options you might have if you think your score is not high enough.

What credit scores are used for a home equity loan or equity line of credit?

Lenders may choose from many different types of credit scores to evaluate their loan applications. The most common type of credit score used by lenders is a FICO score. On top of that, there are 3 major credit bureaus, each of which has its own version of a FICO score. Within each credit bureau also exist different types of scores. 

What are the 3 major credit bureaus?

Equifax, Experian, and Transunion are the three most common credit bureaus where lenders obtain credit scores. Some may only pull scores from a single bureau, but most lenders pull a “merged” credit report from all three.

Are there different types of credit scores?

In addition to the scores, you’ll find at the 3 credit bureaus, there are also different versions of credit scores. This includes different model years and scoring models for varying types of loans. 

For example, an auto lender may be more interested in the likelihood that a customer will miss a car payment or have their car repossessed. So, they may use what’s called an auto-enhanced score, which weighs auto payment history much more heavily in determining risk. Similar versions exist to determine the likelihood of missing a credit card or home loan payment. 

How do I check my credit score?

You’re in luck –House Numbers enables you to check your credit score for free, without a social security number, and without impacting your score! Even better, we then help you analyze your debts and find opportunities to save using your home equity.

U.S. law also entitles you to a free credit report, which you can access via this website. Plus, some credit card companies offer free credit scores as a perk of card membership. If you’re looking for a specific version of a credit score, you may have to pay for it. MyFICO offers a wide range of scores for varying prices.

How can I quickly raise my credit score?

Raising your credit score can qualify you for a better interest rate, which in turn could end up saving you thousands of dollars in interest on your home equity loan or line of credit. Many lenders use tiered pricing, where you can qualify for a better rate once you reach a certain score. House Numbers can help you here, too – we’ll evaluate the options from multiple lenders to see which tiered pricing is most favorable based on your credit score, home equity and financial goals.

For a high score, you’ll want to first review your credit report for any errors. There are also five major categories that determine your credit score, which we’ll go into detail below.

Review your credit report for inaccurate data

According to an article from CNBC, as many as one-third of Americans discovered errors on their reports. Lenders can make mistakes, so it’s a good idea to check your own credit reports for accuracy. Not all errors result in a credit score being impacted, but if you do discover a major discrepancy, you’ll want to address it as soon as possible since correcting errors can often take some time to resolve.

How is my credit score determined?

Your credit score is determined by five major categories. If you’re looking to raise your score, you should focus on maximizing your points in each of the following areas.

Payment history (35%)

One of the largest categories that determine your score is how consistently you pay your bills on time. This includes whether you have any derogatory marks on your credit history, like collection accounts or charge-offs.

Recent late payments affect your score much more. Over time, they have a smaller impact on your score. Continue making payments on time, and you should see your score gradually rise.

Balances owed (35%)

Another category that weighs heavily into your credit score is how much debt you carry. If you are maxed out on your credit cards and have balances that are near or at the maximum credit limit, your credit score will be negatively impacted. Similarly, the more accounts you have with a balance, the more it will hinder your ability to score high.

A good rule of thumb is to keep your credit card balances at 30% or less of the maximum credit limit.

Length of credit history (15%)

15% of your score is based on how long you’ve had credit. The longer the track record you have, the more reliable you’ll appear as a borrower, and the less risky you’ll appear to lenders.

This category of your credit score focuses not only on the total length of your credit history but also on the average age of your credit history. So borrowers who regularly open and close accounts will be hurt with a lower average age of accounts.

Mix of credit (10%)

The more experienced you are with different types of credit, the more your credit score will love you. Some examples of different types of credit include revolving credit cards, open charge cards, mortgage accounts, auto loans, and installment loans.

Recent credit activity(10%)

Finally, the remaining 10% of your credit score is based on your recent credit activity. This includes recent credit inquiries and recently opened accounts.

A credit inquiry gets placed on your credit report each time you apply for credit. However, an exception does exist for certain types of loans. Multiple auto and home loan-related credit inquiries done within a 14 to 45-day window are treated as a single credit inquiry for the purposes of your credit score, as it is common for borrowers to shop rates with multiple lenders.

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Can I get a home equity loan or line of credit with a 500 credit score?

With a credit score of 500, your choices for home equity loans will be very limited, but not necessarily impossible. Your best chance is to find a hard money lender, a company that will take into consideration other items besides just your credit score. These lenders focus on things like the amount of equity in your home, your debt-to-income ratio, any assets you have in deposit accounts or investments, and your income and employment history.

The home will be used as collateral for the loan, and in the event you are unable to make payments, the lender may take possession of the home to recoup their losses.

Due to the higher amount of risk, hard money loans will often come with higher interest rates and fees charged.

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Can you get a home equity loan with a 640 credit score?

With a credit score of 640, you will have many more options to get approved for a home equity loan. You may still encounter a handful of lenders who have higher minimum requirements, but there should still be others willing to lend to you.

You also may not qualify for the best interest rates, but they will most certainly be more competitive than that of a hard money loan, credit card or personal loan

What if I’m denied a home equity loan or line of credit?

If you don’t meet a lender’s minimum criteria to qualify for a home equity loan, ask the lender if they are willing to grant an exception to their credit policy. If the other areas of your application are strong enough, they may be willing to show some flexibility.

For instance, if your credit score is just a few points shy of the minimum required, having a lot of equity in your home, strong employment and income, and/or a significant amount of assets in your bank accounts are all items that can be useful in requesting an exception.

How long does it take to get a home equity loan?

From the time you submit an application, expect anywhere from 21-45 days before your loan is approved and funds are available for you to access.

Depending on the lender, it’s possible that the process can be completed much more quickly. This will be highly dependent on how quickly you respond to their requests for additional information, how busy they are, and what steps are involved for your specific loan. The exact steps can vary depending on the lender but are largely similar.

Submit an application

Once you have decided which lender to go with, you can submit an application so that the lender has the basic information needed to begin reviewing and processing your loan. In most cases, you’ll need to agree to a hard credit pull. If you have frozen any of your credit bureaus, it’s a good idea to unfreeze them before submitting the application to avoid any delays.

Provide the lender with any requested docs for initial application review

After an initial review of your loan application, the lender will request documentation from you. This can be clarification on your application, paystubs to verify your income, bank statements, a copy of your drivers license, a copy of your homeowners insurance, or more. When you send these documents back to your lender, it’s a good idea to make sure they are clear, legible, and contain all pages.

A third-party appraisal

In many cases, the lender will be able to determine the value of your home using an “automated valuation model” (AVM), which calculates an estimate using local, historical sales data. House Numbers uses a lender-approved AVM, and offers you this information for free! So, check out your homeowner dashboard to get a good idea of your available home equity.

In some cases, depending on the specific lender’s requirements, you may need to coordinate a full, on-site appraisal, where a certified appraiser comes to your property to physically inspect the interior and exterior and determine a value.

This appraisal process is done primarily to determine the equity in your home, the loan to value ratio, and whether there are any visible issues with the condition of the property.

Provide any documents requested by underwriting for final approval

Before issuing any final approval, the lender will review any documents it previously requested from you, as well as the appraisal report or any other inspections that were required.

If the lender still has any additional questions, they will reach back out to you for further clarification. If the lender deems all documents acceptable, you’ll be able to move forward to the next step.

Schedule signing with a notary

One of the last steps of the home equity loan process is signing your final loan documents with a notary public. Many lenders use mobile notaries who can travel to your home or place of employment. Some use online notaries, so you can sign electronically via video.

The notary will review your identification to confirm you are who you say you are, before allowing you to sign the final loan documents. Although there should be no surprises at this point, mistakes can happen. Read through the loan documents carefully to make sure there are no errors.

Loan funds

Congratulations! Once you finish your signing with the notary public, the documents will be sent back to the lender for final review. At this stage, the lender will disburse funds for your home equity loan or line of credit, at which point you should be able to access the funds within 24 hours.

Minimum credit score for home equity loan

The minimum credit score to qualify for a home equity loan or line of credit can be different depending on the lender. The higher your credit score is, the greater the chance you’ll get a lower interest rate.

Knowing your score and how scores are calculated can be helpful, as you’ll be able to take the steps needed to make sure it’s as high as possible when you apply for that loan.

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Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. All information shown here is for illustrative purpose only and the author is not making a recommendation of any particular product over another. All views and opinions expressed in this post belong to the author.

Andrew Wan

Written By Andrew Wan

With a decade of experience as a mortgage underwriter and a licensed California real estate broker since 2018, Andrew Wan use his expertise and experience to share insights on the housing industry. He covers a wide variety of topics, from buying a home to what the home loan process entails, and enjoy sharing tips to help better prepare you for how to make it all a seamless experience.
Jeff Levinsohn

Reviewed By Jeff Levinsohn

Jeff is the CEO of House Numbers and a home wealth management geek. He’s obsessed with tools and information that empower homeowners to save money, access their home equity, and build long-term wealth.