A line of credit will give you access to cash for unexpected expenses if you don’t have an emergency fund. However, most lenders only extend it to borrowers with a good credit score.

Getting approved or securing a favorable rate on a line of credit can be challenging if you have bad credit. In this guide, we’ll talk about the bad credit credit line options available, how they work, and tips to manage your credit lines responsibly.

Can You Get a Credit Line With Bad Credit?

Most lenders prefer offering lines of credit to borrowers with a credit score of at least 670. When you apply for a line of credit, the lender will run a credit check on you with at least one of the three major credit bureaus (Experian, TransUnion, and Equifax) to evaluate your creditworthiness.

However, you can still get approved for a line of credit with bad or fair credit from some lenders. You may have to pay a higher interest rate or use strategies like applying with a co-signer to boost your chances of approval.

“Most of the lenders that specialize in these kinds of loans operate almost solely with an online presence, so the application and approval process often takes just a couple of hours instead of a couple of days,” explains Brad Reichert, founder and managing director of Reichert Asset Management LLC. “Once you’re approved, depending on the time of day you receive your approval, you may be able to receive same-day funding, so if that’s what you need, be sure to apply as early in the day as possible,” Reichert adds. 

How Do Bad Credit Credit Lines Work?

A bad credit credit line allows you to borrow money as you need to, up to your credit line’s limit. The payments you make will include interest and will depend on the amount you borrow.  The amount of your monthly payment will typically be 1%-2% of your average daily outstanding balance for the prior 30-day billing cycle, plus any interest charged to your account during that time.

There may be an annual fee or a transaction fee every time you borrow money on your credit line, so be sure to read the loan terms. Lines of credit work like a credit card. This means you’ll have a set credit limit and a minimum payment each month. You can typically get a line of credit from a credit union or a bank.

Why Get a Credit Line When You Have Bad Credit 

When you have credit lines for bad credit, you can get fast access to cash whenever needed. Instead of applying for a loan, you’ll be able to access the money immediately when the need arises, simply by writing a check on your line of credit or by using an ATM/debit card to take an advance in cash.

A credit line also allows you to build credit. While there’ll be a hard credit inquiry that may lower your credit score temporarily when you apply for a credit line, you’ll be able to improve your score over time with on-time payments. Be sure not to max out the credit limit, as this will raise your overall credit utilization rate and, in turn, reduce your credit score.

Unlike a bad credit loan with a fixed repayment term, you’ll only pay interest on your outstanding balance. If you’re clearing the balance in full on time each month, you won’t have to pay any interest.

4 Types of Credit Lines for People With Bad Credit

While there are several lenders that issue lines of credit for people with bad credit, it’s always important to understand your options and compare rates, eligibility, and fees you may have to pay on the credit line(s) you may qualify for to keep your borrowing costs low.

1. Home Equity Lines of Credit

A home equity line of credit (HELOC) is secured against the equity in your home. If you’re a homeowner, this may be one area to explore. Lenders will use a formula to determine how much you can borrow with a HELOC after the application process, known as a combined loan-to-value (CLTV) ratio, which is typically 80% to 85%.

In most cases, lenders require a credit score of at least 680 to qualify for a HELOC. Hitch and SpringEQ are two companies that issue home equity lines of credit to borrowers with bad credit.  In order to qualify, however, they will often require you to apply with a minimum credit score of 620. 

It’s always best to get prequalified to check the loan amounts, interest rates, and monthly payments you will likely get approved for when you do apply. Some lenders may also charge prepayment penalties, so be sure to check.

2. Store Credit Lines

Store credit lines and charge cards provide you with a specific limit and the ability to charge store purchases against it. These are revolving lines of credit, just like regular credit cards, which means that your available credit will increase when you pay down the balance.

Unlike a regular credit card, though, cardholders can use a store credit card only at the specific store that offers it. It’s easier to qualify for these credit cards because the store wants your business on a regular basis and because the interest rates on these accounts are usually 3%-5% above the average Visa or Mastercard account. 

To obtain one of these store credit lines, you’ll usually be able to apply right at the store by providing your Social Security Number and photo identification.

3. Small Business Credit Lines

Small business lines of credit usually have lower limits compared to traditional fixed-term business loans and can range from $1,000 to $250,000. Lenders will determine your eligibility based on your credit score, business financial records, and tax returns.

When seeking a bad credit credit line for a business, it’s best to approach alternative financial institutions. For example, Clarify Capital accepts borrowers with a credit score of 550 and above. If you need flexible access to financing or working capital on a regular basis throughout the year or only at certain times of the year, a business line of credit for bad credit can be a good option.

4. Personal Lines of Credit for Bad Credit

A personal line of credit is similar to an unsecured loan for borrowers with bad credit. Lenders will typically look at your income, credit score, and credit history to evaluate your online application.

Approval will be based on your ability to repay the amount you borrow (i.e., your monthly or annual cash flow), so there may be some options available, especially with alternative lenders, even if you have less-than-perfect credit. Another option is to borrow through mobile apps that loan money or offer cash advances, such as Earnin and Dave, which are easier to qualify for.

Tips To Manage Your Credit Lines Responsibly

Once you get approved for a credit line for bad credit, it’s important to use it responsibly to improve your credit score. We’ve listed our top tips below to help you get started.

Create a Budget

Start by making a monthly budget if you don’t already have one. Make sure to include all your expenses, including your minimum payments for the line of credit. This will give you a better idea of whether you’ll be able to cover your bills each month or if you need to reduce your spending in some categories.

Develop Payment Strategies

Make sure you have a plan on how you’ll pay off your balance. Ideally, you should clear the entire balance before the due date each month to avoid paying interest charges. If you can’t pay the full balance, use a line of credit payoff calculator to estimate how much you’ll need to pay each month to reach your repayment goals.

If you have multiple lines of credit, consider using a repayment strategy like debt snowball or debt avalanche to stay on track and pay off your balances faster.

Monitor Credit Utilization

Credit utilization measures the percentage of the available credit on your line of credit that you’re using. It’s important to keep your credit utilization under 30% for a healthy credit score.

Monitor your line of credit to ensure you don’t exceed this recommendation, at least not for more than a month or two. Adjust your repayment whenever you’re at risk of going above 30% of your available credit. This will help you improve your credit score and ensure you aren’t overextending your finances.

Avoid Late Payments

As with an unsecured credit card or personal loan, you’ll have to pay a late payment fee if you don’t make on-time payments on your bad credit credit line. Defaulting on your credit line will not only result in fees and penalties but can also harm your payment history and negatively affect your credit score.

Set reminders on your phone or use autopay to ensure you’re paying your bill on time to avoid derogatory marks on your credit report.

The Bottom Line on Getting a Credit Line With Bad Credit

Credit lines for bad credit can certainly help you bridge your cash needs in the short term. They also offer lower interest rates when compared to other lending options like payday loans and title loans. However, you’ll almost always be able to get more favorable interest rates if you work on improving your credit score.

Compare the rates you qualify for, and if you feel they’re too high, use strategies like making a few more months of on-time payments on your other accounts, lowering your overall credit utilization rate on your revolving accounts and paying off debt in general, to improve your credit score before you apply for a line of credit. 

Get a copy of your credit report from all three credit bureaus periodically to track your progress.  Once you start seeing improvement in your FICO score, it will encourage you to keep going and do more to boost your credit profile.