You’ve built up equity in your home and are ready to tap into that equity to fund your next project. Whether it’s home renovations or debt consolidation, when you qualify for a home equity line of credit (HELOC), you unlock cash flow for a host of opportunities.
You’re ready to unlock your home equity. What’s next? It’s time to gain a clear understanding of your credit score and how it affects your eligibility, as well as loan rates and terms. Most lenders have minimum credit score requirements to qualify for optimal terms.
At Riverview Bank, we want you to have the best footing when applying for a HELOC, so we’ll break down the credit score needed for a home equity line of credit. Let’s look at these basic requirements and how you can improve your score for more favorable borrowing conditions.
What Is a Home Equity Line of Credit?
Once your home has built sufficient equity—that is, the difference between what you owe on your mortgage and the home’s appraised value—you can borrow against this equity by taking out a second mortgage, or home equity loan. A standard home equity loan allows you to access the money in a single lump sum, while a HELOC works much like a credit card, allowing you to draw from this line of credit as often as you like, up to the approved amount. It’s a way to turn your home’s value into cash so you can fund your next project and meet your financial goals sooner.
HELOCs are popular among homeowners for borrowing money because they typically have lower interest rates than other loan types, such as personal loans or credit cards. HELOCs are considered low risk to lenders since your home serves as collateral, making it easier to obtain lower rates.
In addition to lower borrowing rates, homeowners can use their line of credit for just about any purpose and only pay interest on what they use. You can draw on your line of credit as often or as little as you like and then pay off the balance and reuse your line of credit multiple times during the draw period.
Credit Score Needed for a Home Equity Line of Credit
HELOC eligibility requirements vary from lender to lender, so it’s important to check with your preferred lender for their conditions. Most lenders will consider applicants with a credit score in the high 600s. While some lenders are willing to work with borrowers with lower credit scores, their loans may come with less favorable loan terms and higher rates. Check your credit score for free to find out where you stand before you apply.
To secure the most advantageous borrowing conditions, such as qualifying for the best rates, you will want to aim to raise your credit score to the 700+ range. Not only does your credit score affect your eligibility, but it also directly impacts your interest rates and loan terms—the better your credit score, the better your rates and terms.
Your credit history communicates how reliable a borrower you are. It tells a lender that you have a history of repaying your debt and making timely payments. Since you are historically a low-risk borrower, you unlock lower rates and more favorable loan terms. If you have a higher credit score, you may be able to secure lower monthly payments and save significantly on interest.
8 Simple Tips for Boosting Your Credit Score
Before applying for a home equity line of credit, you may want to consider improving your credit score to secure optimal borrowing conditions. A small boost could mean saving thousands of dollars over the life of the loan.
To increase your credit score, try these helpful tips:
1. Pay Your Bills on Time
Timely payments can have the biggest impact on your credit score. If you have missed or made late payments in the past, consider setting up auto payments so you never miss a payment again.
2. Get Credit for Rent and Utility Payments
Use a rent-reporting service to get credit for payments that aren’t typically reported to credit bureaus. These can include rent, utilities, insurance, and your cell phone.
3. Pay Down Account Balances
Pay off as much debt as possible by consolidating debt and looking at debt repayment strategies. Aim to reduce your total balance to less than 30 percent of your available credit.
4. Dispute Any Credit Report Errors
Check your credit report for any errors and promptly resolve them. If there are any inaccuracies, dispute them with the credit reporting agencies. Failing to do so could significantly lower your credit score.
5. Don’t Close Old Accounts
The length of your credit history has a significant impact on your credit score. Even if you’ve paid off the credit card and haven’t used it recently, don’t close it. FICO suggests that 15 percent of your credit score is affected by the age of your accounts.
6. Limit Opening New Credit Accounts
Nearly every time you apply for credit, a lender runs a hard inquiry into your credit report. These hard inquiries take points off your credit score. Avoid applying for multiple credit cards in a short period of time, as it could negatively impact your credit score.
7. Diversify Your Credit
When you do apply for credit, you may be able to improve your credit score by adding to your credit mix. Adding another type of credit you don’t already have can help boost your score. For instance, a credit card and an auto loan may help your score if, previously, you’ve only had a car loan and nothing else.
8. Become an Authorized User
If a relative or friend has a credit card in good standing (high credit limit and good repayment history), consider asking them to add you as an authorized user. You don’t even need to use their card or have access to their account for it to improve your credit.
The Bottom Line
When applying for a HELOC, you’ll need a credit score in the upper 600s or possibly 700s to qualify. If it doesn’t currently fall within this range, consider implementing the above tips to boost your score before you apply. This can prove to be a net benefit, as you reap the advantages of better interest rates and loan terms for your home equity line of credit.
Riverview Bank is here to help you tap into your equity and increase your cash flow with competitive rates and flexible terms. Apply today and start taking advantage of your home’s value.