What Credit Score Do You Need to Get a Home Equity Loan?
Can you get a home equity loan with a bad credit score? You’re hoping so, now. When you bought your house, the pink bathroom was cute and retro, but after living with it for years, you’re about ready to spray paint the whole thing just to get a break. But with bad credit, what are your options when it comes to renovating?
Credit Scores and Home Equity
As it turns out, you don’t have to have top-tier credit in order to qualify for a home equity loan. In fact, most lenders will give you a look with a credit score of 620 and some speciality lenders will consider you with a score in the mid to high 500s.
This is largely because you’ve already proven that you’ll pay your bills on time and that you can handle a mortgage loan. It doesn’t hurt that your home equity loan will be secured by the equity you’ve built up in your house. Now you can tap that pile of credit and update that bathroom to something you’re proud to show your friends.
What Happens When Your Credit Score’s Too Low?
If your credit score falls below the lowest number that your bank will accept, even with compensating factors considered, you’re going to have to take some time to work on it. A focused effort can make a big change in your credit score in a relatively short period of time. You may have to wait a little bit to enjoy that new high pressure shower and sleek, granite countertop, but you can get your credit score into range.
Try these for a dramatic credit boost:
#1. Check your credit report. You’d be surprised how many errors there can be on your credit file. For the most part, the companies in charge of your credit file get it right, but when they get it wrong, it can hurt you massively. Go to annualcreditreport.com and get your free credit report from each of the three main reporting agencies. Then really look them over. Dispute anything you don’t recognize or that is simply incorrect. That one act alone can raise your score by a lot, depending on the number and type of errors present.
#2. Pay down your debt. About 30 percent of your credit score comes from your debt utilization. Simply put, this is how much of your credit is used up. So, let’s say you have $8k in credit between several credit cards. If you’re using 80 percent, or $6400, that’s really going to hurt your score. Instead, shoot for 30 percent or lower utilization. For $8k, that’s no more than $2,400. As you pay off cards, remember to leave them open so that available credit counterbalances the credit that’s being used. Otherwise, you’ll still have issues with your utilization percentage.
#3. Keep on making on-time payments. Your payment history is the most important part of your credit score, so keep on making those on-time payments. Don’t miss by a day, a week, and don’t pay a late fee ever again. If you tend to forget to pay bills, set reminders up on a calendar or switch to auto-pay.
If you really need a home equity loan right away, it may pay to shop around until you find someone who will write your loan. Without working on your credit, your rate is likely to be very high, but sometimes you need to pay for things right away and you don’t have the luxury. Non-conforming home equity loans are often very flexible, provided you’re willing to pay extra.