Mortgage / Equity

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Home Equity Line of Credit Poor Credit

It is possible for a homeowner that has poor credit get a home equity line of credit. A person with poor credit will have to pay a higher interest rate on a home equity line of credit.

An individual with a poor credit rating can get a home equity line of credit because a home equity line of credit is secured. A secured line of credit is backed by collateral that the lender can take possession of if the line of credit isn’t paid. A home equity line of credit is secured by the equity in the home.

The equity is the value of the home that exceeds the amount that the home is mortgaged for. If your home is worth $80,000 and mortgaged for $30,000 you have $50,000 worth of equity available.

A home equity line of credit enables you to borrow against the equity in your home. The difference between a line of credit and a loan is that a line of credit is potential credit you can borrow. A loan is a one time payment of borrowed money.

You Will Pay More for a Home Equity Line of Credit Poor Credit

Lenders determine the interest rates they charge on home equity lines of credit based on a borrower’s credit rating. A borrower with good or excellent credit will pay a lower interest rate while a borrower with poor or bad credit will pay a higher interest rate.

This means that an individual with poor credit will usually have to pay a higher interest rate on a home equity line of credit. A higher interest rate means that you will have higher payments on your home equity line of credit.

Ways to Get a Better Interest Rate with Poor Credit 

It is possible for a homeowner who has poor credit to get a better interest rate on a home equity line of credit. Lenders will overlook poor credit for homeowners who prove they can offset the risk of poor credit.

A homeowner with poor credit who is willing to submit to income verification might get a better interest rate. Submitting to income verification means that you let the lender check and see if you actually have the money to pay off the line of credit.

A homeowner who has a lot of equity in their home might also be able to get a better interest rate. Since the equity secures the line of credit, the lender maybe willing to take the risk of poor credit lending. The lender is willing to take this risk because the homeowner has equity to use as collateral.

Improve Your Credit Score

A homeowner who has a poor credit score can save money on a home equity line of credit by improving their credit score. If the homeowner can raise their credit score to good they should be able to get a better interest rate.

One way a person can raise their credit score is to remove false or inaccurate information from their credit report. Credit bureaus will take inaccurate information off of credit reports on request. Many credit reports contain false and inaccurate information. Removing a few negative items from a credit report can raise a credit score to good.

Before seeking a home equity line of credit a homeowner should get a copy of their credit report. That way they can know what credit score they have and what interest rate they can expect to pay.