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Getting approved for a home equity line of credit (HELOC) depends largely on your credit score. But with multiple FICO score versions available, which one do lenders actually look at for HELOC applications? Let’s break it down in this complete guide to FICO scores and HELOCs.
What is a HELOC?
First, a quick HELOC overview A HELOC allows homeowners to borrow against the available equity in their home, similar to a credit card The home serves as collateral to secure the line of credit.
HELOCs offer flexible access to funds at generally lower interest rates compared to other financing options like personal loans or credit cards. Borrowers can draw from the line as needed up to a set limit.
Why Your FICO Score Matters for HELOC Approval
Lenders view your FICO score as an indicator of your creditworthiness – how reliably you handle debts and make payments The higher your score, the less risky you look to lenders
Your FICO score directly impacts not just HELOC approval, but also the terms and interest rates offered. Those with excellent scores (740+) typically qualify for the best rates. Conversely, a lower score means you may face higher rates or denial.
Beyond the score itself, lenders also weigh factors like your debt-to-income ratio, home equity, and income stability. But your FICO score serves as a crucial starting point in assessing your application.
HELOC Credit Score Requirements
Most lenders look for a minimum FICO score of 680 to approve a HELOC application. However, that score only meets the baseline requirement.
To secure the most favorable rates and terms, you’ll need an excellent credit score of 740 or higher. Here’s a general breakdown of how different credit score ranges impact HELOC approval and pricing:
- Excellent (740+): Best rates and terms
- Good (670-739): Competitive rates, good approval odds
- Fair (580-669): Higher rates, may require other qualifying factors
- Poor (below 580): Harder to qualify, very high rates if approved
While these ranges provide a helpful benchmark, specific requirements can vary by lender. Major banks typically enforce stricter criteria of 680+ FICO scores. Meanwhile, credit unions may show more flexibility, sometimes accepting scores as low as 620.
Online lenders use algorithmic underwriting and look at multiple factors, so they may approve borrowers with lower scores but strong financial profiles otherwise.
Which FICO Score Version Do Lenders Use?
Now we get to the key question – which FICO score specifically comes into play for HELOC approval?
Unfortunately, there is no single definitive answer. Individual lenders make their own decisions on which FICO score versions to consider.
For example, some major banks like Chase rely heavily on FICO Score 8, the most commonly used score today. Other lenders may look at older models like FICO Score 5 or industry-specific versions like FICO Score 4 for mortgages.
Credit unions have more flexibility compared to banks beholden to investors. They can use whichever FICO scores they prefer in their underwriting policies.
Online lenders and fintech companies take full advantage of technology to incorporate multiple factors and FICO score versions in their algorithms. This allows for more nuanced and data-driven risk analysis.
The takeaway is that the specific FICO score a lender uses depends on their individual lending criteria. The range of scores they expect to see likely aligns with industry norms, but the precise FICO model itself varies.
How to Check Your FICO Score for HELOC Applications
Not knowing which FICO score the lender will evaluate creates uncertainty. How can you best prepare when applying for a HELOC?
A good strategy is to check your scores across multiple models before applying. At minimum, look at these three key versions:
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FICO Score 8: The most widely used score today, you can access this score for free through credit cards and personal loans that offer FICO score monitoring.
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FICO Score 5: Older FICO model still commonly used, especially by credit unions. You can purchase FICO Score 5 directly from myFICO.com or Fair Isaac.
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FICO Score 4: Previously industry-standard for mortgages, and still used by some HELOC lenders. Available for purchase from Fair Isaac.
Checking all three provides reasonable coverage to understand how most lenders will view your creditworthiness for a HELOC. If your scores come back lower than desired, take steps to improve them before submitting your application.
How to Improve Your FICO Score for Better HELOC Chances
If your FICO scores fall short of ideal HELOC range, take action to increase them. Here are some proven ways to help boost your credit score over time:
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Pay bills on time. Payment history makes up 35% of your FICO score. Set up reminders to never miss due dates.
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Lower credit utilization. Keep balances low, ideally under 10% of your total credit limits.
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Avoid new credit applications. Too many hard inquiries in a short period can ding your score. Only apply for credit when absolutely needed.
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Check reports for errors. Dispute and correct any inaccuracies dragging down your scores.
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Maintain old accounts. Keep long-standing credit cards open, even if unused, to preserve the length of your credit history.
With diligent credit management over time, you can raise your FICO score and improve the likelihood of HELOC approval with great terms.
Which Score Ultimately Matters Most?
While you can’t know exactly which FICO score version a lender will use, the ranges expected are consistent across models. Checking your FICO Score 8, FICO Score 5, and FICO Score 4 will provide reasonable insight into where your creditworthiness stands for HELOC consideration.
The bottom line is that an excellent FICO score remains crucial for securing the best HELOC offers. Monitoring multiple key FICO models helps ensure you understand how lenders will view your creditworthiness when you apply.
With proper preparation and attention to improving your credit, you can put yourself in a strong position to get approved for a HELOC with great rates and maximize the value of your home’s available equity.
Credit Score Requirements for HELOCs
Different lenders have different credit score requirements for HELOCs. According to Experian, borrowers likely need a FICO Score of at least 680 to qualify for a HELOC, but some lenders may prefer a credit score of 720 or more.
At Freedom Mortgage, we may be able to help you qualify for a cash out refinance with a lower credit score than may be required for a HELOC. Our typical minimum credit scores depend on the loan type.
- We can often accept a minimum credit score of 620 for a Conventional cash out refinance.
- We can often accept a minimum credit score of 550 for a VA loan cash out refinance.
- We can often accept a minimum credit score of 550 for an FHA loan cash out refinance.
Learn About Qualifying for a Home Equity Line of Credit
When you have equity in your home, you have options. You can use your equity to get cash to pay for college or home upgrades, to consolidate high-interest debts, or to pay for anything else you may need.
One way to get cash from your home equity is with a home equity line of credit (also called a “HELOC”). Home equity lines of credit work much like credit cards do. You can choose how much money to take out from a HELOC, up to a certain limit. You can choose when you take the money out during a set period of time when you can access available funds. This is called the “draw period.”
You also make monthly payments on HELOCs. Often, you are only required to make interest payments during an initial period. After the draw period, youll make monthly principal and interest payments until the HELOC has been paid off. Other ways to borrow against your home equity include home equity loans and cash out refinances.
To qualify for a HELOC, you need to meet the requirements set by the lender. Lenders typically look at your home equity, your loan-to-value ratio, your debt-to-income ratio, and your credit score before they decide if you qualify for a home equity line of credit. These numbers can also affect the interest rate they might offer you on a HELOC. Lets look at these requirements in more detail.
Which FICO Score Is Used For Home Loans? – CreditGuide360.com
FAQ
What FICO score do lenders use for HELOC?
According to Experian, borrowers likely need a FICO Score of at least 680 to qualify for a HELOC, but some lenders may prefer a credit score of 720 or more. At Freedom Mortgage, we may be able to help you qualify for a cash out refinance with a lower credit score than may be required for a HELOC.
What credit score do you need for figure HELOC?
What is the average credit score for a HELOC?
You’ll need a minimum 620 score, though the most competitive rates typically go to borrowers with 780 scores or higher. Debt-to-income (DTI) ratio under 43%. Your DTI is your total debt (including your housing payments) divided by your gross monthly income.
What do lenders look at for HELOC?
Qualifying for a HELOC
You can typically borrow up to 85% of the value of your home minus the amount you owe. Also, a lender generally looks at your credit score and history, employment history, monthly income and monthly debts, just as when you first got your mortgage.
What credit score do you need for a HELOC?
Many homeowners like the peace of mind that comes with knowing their interest payments won’t change. Different lenders have different credit score requirements for HELOCs. According to Experian, borrowers likely need a FICO Score of at least 680 to qualify for a HELOC, but some lenders may prefer a credit score of 720 or more.
What if my credit score is too low for a HELOC?
If your current credit score is too low to qualify for the best interest rates and terms offered by your preferred HELOC lender, consider waiting to apply and taking action to improve your score. This can be done by making your bill payments on time, building your credit history, and paying down other debts.
Can I refinance with a lower credit score than a HELOC?
At Freedom Mortgage, we may be able to help you qualify for a cash out refinance with a lower credit score than may be required for a HELOC. Our typical minimum credit scores depend on the loan type. We can often accept a minimum credit score of 620 for a Conventional cash out refinance.
Can I get a HELOC If I don’t meet a line of credit?
Yes; if you don’t meet a lender’s home equity line of credit requirements, it’s likely to decline your application. The most common reasons homeowners get turned down for a HELOC include: Check your HELOC options. Start here
How can I improve my chances of being approved for a HELOC?
If you are concerned about your credit score, you might consider applying for a lower HELOC amount so that your CLTV ratio is lower. This may improve your chances of being approved. Lenders may charge a higher interest rate or offer a lower loan amount to minimize the risk of nonpayment on the loan.
How do lenders determine if you qualify for a HELOC?
When lenders are deciding whether you qualify for a HELOC, they will take your current total monthly debt payments, add them to an estimate of what your payments for the new HELOC might be, and then calculate a new, higher debt-to-income ratio. Lenders usually have a maximum DTI for you to qualify for a HELOC.