Getting Approved for a Line of Credit Loan with Bad Credit: A Complete Guide

Having bad credit can make it challenging to get approved for loans from traditional lenders like banks or credit unions. But there are still options for borrowing money even if your credit scores aren’t great. One potential option is a line of credit loan for people with bad credit.

In this complete guide, we’ll break down everything you need to know about getting a line of credit with bad credit.

What Is a Line of Credit Loan?

A line of credit loan provides access to a set amount of money that you can draw from as needed It works similarly to a credit card in that you have a maximum credit limit but don’t have to use the full amount right away

With a line of credit, you can withdraw money up to your credit limit whenever you need extra funds. As you pay back the amount borrowed, that money becomes available to access again.

Unlike a closed-end loan like a personal loan, a line of credit is revolving credit. That means your credit limit doesn’t decrease over time as you make payments. You can continue borrowing up to the same limit as long as the line of credit remains open.

How Do Line of Credit Loans for Bad Credit Work?

Line of credit loans for bad credit work very similarly to traditional lines of credit. The main difference is the lender’s underwriting criteria.

Many banks and credit unions only approve borrowers with good or excellent credit for lines of credit. Online lenders and other alternative financial services providers may offer line of credit loans tailored for people with less-than-perfect credit.

With a bad credit line of credit loan you can get approved for and access extra funds even if you have

• A limited credit history
• Low credit scores
• A past bankruptcy or foreclosure
• A recent delinquency or collection account
• Maxed out credit cards

As with any loan product, the lender will review your income, employment status, and other financial details in addition to your credit reports and scores. But having bad credit doesn’t automatically disqualify you.

Once approved, you can withdraw money up to your credit limit and only pay interest on the amount borrowed. Terms often allow you to pay back the balance in installments over 6 to 24 months.

Benefits of Bad Credit Line of Credit Loans

Compared to other bad credit lending options, line of credit loans offer a few advantages:

• Reusable funds: With an open line of credit, you can borrow up to your limit, repay the balance, and borrow again as needed.

• Pay interest only on what you use: Your monthly payment and interest charges are based only on the outstanding balance, not the total credit limit.

• Flexibility: You can access smaller amounts of cash flow instead of taking out one large lump-sum loan.

• Fast funding: Many lenders provide access to funds within one business day of approval.

• Easier to qualify: Approval is often based on your income rather than just your credit scores.

• Opportunity to build credit: Making on-time payments can help improve your credit over time.

For those reasons, a line of credit loan may be a more accessible borrowing option than other types of loans for bad credit borrowers.

What Credit Score Is Needed for a Line of Credit Loan?

Many lenders that offer bad credit line of credit loans don’t disclose a minimum credit score requirement. That’s because they look at your entire financial profile, not just your credit scores.

However, to give you an idea of what to expect:

• Good credit: 670+ credit score – You may qualify for the best rates from mainstream lenders.

• Fair credit: 580-669 credit score – You have a decent shot at approval from online lenders.

• Poor credit: 300-579 credit score – Approval is still possible but expect higher rates.

• No credit: No credit history – Alternative lenders may approve you based on income.

The better your credit scores, the lower interest rate you can likely qualify for. But don’t let bad credit deter you from applying. Many lenders are willing to work with borrowers across the credit spectrum.

What Do You Need to Apply for a Bad Credit Line of Credit?

Gathering the right information before you apply can make the approval process faster and easier. Here are the typical eligibility requirements:

• Identification: Government-issued ID such as a driver’s license or passport.

• Income: Pay stubs, tax returns, disability statements, or bank statements showing regular income.

• Employment: Proof you have a steady job (or other income source) by providing recent pay stubs or your employer’s contact information.

• Residence: Documentation showing your name and current home address, like a utility bill or lease agreement.

• Bank account: An open checking account in your name to receive the loan funds. Savings accounts sometimes work too.

• Contact details: Working phone number and email address for communicating with the lender.

• Social Security number: Required for the lender to pull your credit reports.

Double check what documents each lender needs before starting an application. Online lenders may have slightly different requirements than in-person lenders.

How to Apply for a Line of Credit Loan with Bad Credit

If you need extra funds and want to apply for a line of credit loan with bad credit, follow these steps:

1. Compare lenders

Research different lenders and compare factors like minimum credit score requirements, interest rates, fees, loan amounts offered, and borrower reviews.

2. Choose a lender

Select a lender that offers competitive rates and seems to approve borrowers with bad credit.

3. Check eligibility requirements

Verify what information and documentation you’ll need to provide to complete the application.

4. Gather required documents

Have all your paperwork ready including proof of ID, income, employment, and bank account info.

5. Complete the application

Apply online or in person. Approval is often fast, sometimes in minutes.

6. Accept the loan terms

If approved, e-sign the loan agreement after carefully reviewing the terms.

7. Get your funds

The lender will deposit the approved loan amount directly into your checking account, often by the next business day.

Then once your line of credit is open, you can access extra funds whenever necessary up to your approved credit limit.

What Interest Rates Can You Expect with Bad Credit?

Part of shopping different lenders is comparing the interest rates each offers. The higher your credit score, the lower rate you can qualify for.

Here are the rate ranges you can typically expect based on your credit:

• Excellent credit (750+): 5% – 15%

• Good credit (700-749): 10% – 20%

• Fair credit (650-699): 15% – 25%

• Poor credit (600-649): 20% – 30%

• Very poor credit (Below 600): 25% – 36%

Keep in mind the lender also factors in your income, existing debts, and loan amount requested when deciding your rate. Having collateral or a co-signer may also help secure a lower interest rate.

Aim for the lowest rate you qualify for, so you pay less in interest charges over the life of the loan.

What Are Some Alternatives to Bad Credit Line of Credit Loans?

If you need to borrow money but want to avoid a line of credit loan, here are a few other bad credit financing options:

• Secured credit cards: Require a refundable security deposit used as your credit limit.

• Credit builder loans: Establish payment history with a savings-secured installment loan.

• Payday alternative loans: Offer better terms than payday loans if you’re eligible to join a credit union.

• Peer-to-peer lending: Get a personal loan funded by individual investors instead of a bank.

• Pawn shop financing: Borrow against an item of value you provide as collateral.

• Retail financing: Apply for credit with a specific retailer to make purchases from their store.

Each option has pros and cons to weigh based on your situation. Make sure to compare costs and eligibility criteria before deciding which route to take.

Tips for Managing Your Bad Credit Line of Credit Loan

If you get approved for a line of credit loan with bad credit, be sure to manage it responsibly so it works in your favor. Here are some tips:

• Only withdraw the funds you need so you minimize interest charges.

• Make at least the minimum payment every month to avoid late fees. Set up autopay if possible.

• Pay more than the minimum when possible to pay down the principal faster.

• Keep your credit utilization below 30% of your limit to avoid hurting your credit scores.

• Avoid maxing out your credit limit as this can also negatively impact your credit.

• Don’t take cash advances or transfers as they often have higher fees and rates.

• Contact your lender immediately if you anticipate missing a payment due to