A home equity loan is a commonly used form of credit that some people use to consolidate credit card debts. Your ability to get a home equity loan, like every other credit instrument, depends on several factors, including your past history as a credit user and your credit scores.
Home Equity Loans
A home equity loan is a specific kind of secured loan in which you use the equity in your home as collateral for money given to you by your lender. Home equity loans are typically offered by banks and other lenders, for such purchases as home improvements or even medical expenses. When you use your home equity loan to pay off credit cards, this is a form of debt consolidation where you use the equity loan to pay back several credit card debts.
Bad Credit
When you ask a lender for a loan, the lender considers several factors in determining if you are an acceptable candidate. Your credit score is a number based on your past activity as a credit user. A person with a bad credit score is less likely to receive a home equity loan than someone with good credit, though this largely depends on how bad your score is.
Terms
If you have bad credit and your lender approves your loan application, you will most likely not receive good loan terms. While having equity in your makes it easier for a creditor to grant the loan because it will use your home as collateral, bad credit scores mean higher interest rates. If you're using your equity loan to pay back credit cards, the home rate on your home equity loan may not be enough to offset your credit card balances.
Bad Credit
What constitutes bad credit differs for each lender. Lenders base bad credit on several factors, one of which is a person's credit score which ranges between 300 and 850. The highest scores are from 720, with the best interest rates and terms offered to these borrowers. Any score below 620 is defined as bad credit; these borrowers will have a much harder time receiving credit or obtaining good terms for a home equity loan.
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