You can, but it is difficult. That’s the short answer.
Home equity loans and home equity line-of-credit loans or HELOC provide you with cash using the equity you have built up in your home. However, trying to get a home equity loan with bad credit is an obstacle.
Consider these 3 steps first:
- Understand the definition of bad credit. Some people believe that when making a payment five to 10 days late will give them bad credit. However, using the grace period won’t give you bad credit. You must be delinquent 30 days before the payment is negatively reported to the credit bureau.
- Address your credit score. Minimum requirements vary by lender, but a credit score under 620 may be too low to qualify for a loan at all.
- Let the lender make the call if you have bad credit. You may find a lender more lenient on your credit rating when you have collateral that you can tie to the loan, and home equity is an exceptional asset to use as collateral. This means that even if you do not qualify for an unsecured installment loan at your bank, you may qualify for a home equity loan with bad credit. This is generally a lower interest rate option as opposed to an unsecured loan, but your credit rating may drive the interest rate higher.
The best thing to do is avoid getting into a financial hole to begin with by doing the basics of good financial stewardship.
Pay down your credit card balances. The balance on your credit cards compared to your credit limit is your credit utilization ratio. And your utilization ratio accounts for 30 percent of your FICO score. (FICO is an abbreviation for the Fair Isaac Corporation, the first company to offer a credit-risk model with a score.) Only your payment history at 35 percent has a bigger impact on your credit score. Try to get those balances below 10 percent of the credit limit to maximize your credit score before having a lender run your credit. At Chelsea State Bank, we always recommend that you make your payment on or before your due date. It only makes financial sense to avoid the costly late charges.
Other options to consider:
- Ask a friend or family member to add you as an authorized user on their credit card account, one that is in good standing. That account history is reported on your credit report which will raise your credit rating.
- Paying off other non-credit card debt will help reduce your debt-to-income ratio, making the loan less of a risk to a mortgage lender. Not only will it make your loan application look more attractive, it may help increase your credit score as well.
- Remove late payments. First try contacting your creditor and asking them to remove the late payment. Sometimes a creditor will do this for a long-standing member as an act of goodwill.
Getting a home equity loan with bad credit is not impossible. If you have decided to look for a home equity loan and you are concerned about poor credit, it is important that you are aware of your credit scores right up-front. You can pull a free copy of your credit report. You can do this before shopping for a loan. When you speak to a Chelsea State Bank lender be upfront about your credit situation. We will work with you.
Simply call us at 734.475.4210 or begin a home equity loan with Chelsea State Bank.