Home equity lines of credit are similar to what you’d find with a typical credit card, but the lender uses your house as its collateral. This is a beneficial option for people with poor credit scores who would otherwise be denied a normal credit card or receive a ridiculously high interest rate with the one they’re approved for. The line of credit can be borrowed against at your own discretion, but you’ll be responsible for paying the full amount you borrowed after about 10 or 15 years. Your lender will give you a specific contract outlining the terms of agreement that you will need to approve before receiving your HELOC.
Before taking out any type home equity line of credit, you need to know how much you’ll need and what it’ll be used for. A lot of homeowners go with a HELOC option because they need a large lump sum of temporary cash for medical emergencies, outstanding bills, home maintenance and repair or to pay off other loans they’ve accumulated. You need a clear goal for the money so as not to spend it on frivolous expenditures that will only need to be paid back with interest over the next few decades.
It can be daunting to apply for a line of credit when you have a poor credit score. You’re probably so used to receiving denial letters that you don’t want to bother trying to get approved by a lender anymore. Unfortunately, circumstances come up in life that force us to need a large amount of cash that is required right away. In these cases, a home equity line of credit is ideal for individuals struggling to improve their credit score. As you pay back the borrowed amount, you’ll be improving your credit score as well, increasing your chances of getting better rates and loans in the future.