In this article, we take a look at what is considered bad credit and what home improvement loan options you have with bad credit. We’ll also explore the loan application process and tips to improve your credit score. By the time you’re finished reading, you should have valuable insights and guidance to fund your home renovation in the smartest way possible for you.

What is Considered Bad Credit?

Credit scores typically range from 300 to 850. Lenders set their eligibility criteria so what’s considered “bad credit” can vary. Having a credit score below 600 is generally considered bad credit. However, some lenders might consider scores in the low 600s as fair, while others might see scores in the mid-500s or below as bad credit. If you shop around, you can usually find one that’s more lenient.

How Bad Credit Affects Your Loan Options

Lenders use credit scores to assess your creditworthiness when applying for loans, credit cards, or mortgages. They view a positive credit history as a reflection of your reliability, trustworthiness, and risk. As a result, lower credit scores might lead to higher interest rates, limited loan options, or difficulties in obtaining credit.

Home Improvement Loans When You Have Bad Credit

Wondering how you can get a home improvement loan with bad credit? Here are some of the possible loan options available to homeowners who fall into this category:

FHA 203(k) Renovation Loan

A FHA 203(k) rehab loan allows you to finance the purchase of your home and your renovation project in one loan. Receiving this loan with bad credit can be challenging but not impossible. While the FHA has no strict minimum credit score, most lenders typically look for a score of at least 580 for a lower down payment. However, if your credit score falls below this threshold, you may still be able to secure the loan by demonstrating a solid payment history, stable income, and a thorough renovation plan.

FHA Loan

A standard FHA home loan, also known as a FHA 203b, can only be used on your primary residence, and is good for first-time homebuyers and current homeowners looking to refinance as it doesn’t require equity in your home. These loans are more flexible in terms of credit requirements compared to many other loans, but it comes down to the lender’s discretion. Individual lenders set their thresholds. Having a solid proposal, a stable income, and a reasonable debt-to-income ratio can strengthen your application. Some lenders might request additional documentation or a larger down payment. Working on improving your credit score or considering a co-signer can improve your chances.

Home Equity Loans

Given the impact of credit scores on loan approvals and terms, you may encounter higher interest rates or limited options when applying for a home equity loan with bad credit, but these loans generally offer the lowest rates outside of a first mortgage. Use this monthly payment calculator to work out how RenoFi home equity loans can increase your borrowing power — without affecting your credit score. That means that as long as you qualify, you can get a lot more money to cover your project expenses than with a traditional home improvement loan regardless of your credit score.

Eligibility Requirements

Lenders set their eligibility criteria for loan approval. Some lenders may explicitly state minimum credit score requirements; others may be more flexible, considering your income, employment history, or collateral. Some specialized lenders or programs may be more forgiving by accommodating lower credit scores or catering to varying incomes.

Some lenders may require collateral, such as your property, to secure the loan. Collateral serves as a form of insurance for lenders, especially when dealing with higher-risk borrowers. Meeting eligibility requirements is key. By aligning with a lender’s specified criteria, you increase your chances of getting a loan or receiving more favorable terms.

How to Apply for a Home Improvement Loan with Bad Credit

The typically application process for home improvement loans involves several key steps: 

Submit Information

Lenders may ask for the following information when completing your application:

  • Personal Information: Your full name, address, contact details, Social Security number, and identification (such as a driver’s license). 
  • Financial Information: Details about income sources, employment history, current employment status, and recent pay stubs or tax returns. 
  • Project Details: An outline of the planned renovations, including project costs and scope, to justify the loan. 
  • Debt Information: Information about current debts or outstanding loans, including monthly payments and total debt obligations. 
  • Bank Statements: Documentation to confirm your finances and repayment ability. 

Review Process

During the review process, lenders assess your financial profile. They look at your credit history, your income stability, and the planned use of the funds for renovations or upgrades. The lender evaluates your debt-to-income ratio (DTI) and determines the value of any collateral.

Additional Documentation

For applicants with less-than-ideal credit, the lender may request additional documentation, such as further proof of income and detailed project plans. They may ask for additional collateral or explanations for negative credit items.

Approval Process

The time it takes to approve the loan can vary from several weeks to several months. Based on the evaluation, the lender decides whether or not you are approved and will offer specific terms, such as interest rates, the loan amount, and the repayment period. At closing, you will sign a loan agreement. There may be a waiting period before the lender releases funds. Once you have the loan and have access to the funds, you can start renovating.

Improving Credit for Better Loan Options

Improving your credit score opens doors to better terms and rates. It grants you access to a broader range of loan options and increases the likelihood of approval.

Here are some effective tips to improve your credit score: 

  • Pay on Time: Pay bills, loans, and credit cards on time. Late or missed payments impact your credit score. 
  • Reduce Debt: Keep your credit utilization low (below 30% of the credit limit).
  • Monitor Credit Reports: Regularly check your credit reports for errors or inaccuracies and dispute any discrepancies. 
  • Limit New Credit Applications: Apply for new credit sparingly and strategically. Multiple inquiries within a short time can lower your credit score. 
  • Diversify Your Credit: Have a mix of credit cards and installment loans. 
  • Keep Old Accounts Open: Keep well-managed accounts open. This demonstrates a longer credit history.
  • Use Credit Wisely: Avoid maxing out credit cards or carrying high balances. 
  • Create a Payment Plan: Create a structured payment plan to manage and reduce debts. 
  • Seek Financial Counseling: Learn tailored strategies for managing your debt, budgeting, and savings. With guidance, you can improve your credit and make informed financial decisions.


Here are a few of the most frequently asked questions people have about getting a home improvement loans with bad credit:

Can you still qualify for a home improvement loan if you have bad credit?

Yes, you can qualify for a home improvement loan even if you have bad credit. There are various options available, but getting approved may come with challenges. You may encounter higher interest rates or stricter terms compared to someone with a better credit score. You can opt for a cosigner with a better credit history to help you secure more favorable terms. 

What are the typical interest rates for home improvement loans if you have bad credit?

Interest rates for a home improvement loan can vary widely, depending on the project and the homeowner. Borrowers with bad credit may encounter higher rates due to the increased risk they pose to a lender. 

Are there alternative options if traditional lenders deny my home improvement loan application due to bad credit?

Yes. You can use credit cards to fund the project, seek specialized lenders catering to poor credit, or apply for government-backed programs. Home equity options, such as home equity loans and HELOCs, may also be a possibility, as are peer-to-peer lending platforms and online lenders specializing in bad credit loans. 

What else do lenders look at, other than credit score?

Credit score isn’t the only factor lenders consider when examining a homeowner’s eligibility for a loan. They will look at your income and employment history, as well as the ratio of your debt compared to your pre-tax income, otherwise known as your debt-to-income ratio (DTI). 

How can improving my credit score impact my home improvement loan options?

Improving your credit score can be a game-changer. A better score can expand your options and unlock more favorable terms, such as lower interest rates and lower monthly payments, which will save you significantly over the life of your loan. You will also have more choices, access to larger loan amounts, and more flexible repayment terms. 

What are some strategies to improve my credit score?

Paying your bills on time significantly impacts your credit score. Set up automatic payments or reminders so you don’t forget. Reduce credit card balances, keep credit utilization low, and check your credit report often. Aim for a mix of credit types, such as different credit cards and installment loans, to build your credit portfolio. 

How much can I borrow for my home improvement project?

The amount you can borrow to fund your project depends on a lot of factors, including your loan type, the value of your property, the balance on your mortgage, your credit score, and your location. 

When considering how much you can borrow, lenders typically look at the combined loan to value ratio, or CLTV. The CLTV compares the secured loan balance on a piece of property to its appraised value, allowing the lender to measure risk. Most home improvement loan guidelines permit homeowners to borrow up to 80% or 90% of the value of the property before renovations. But the down side is that you may need more money than you qualify for when using the pre-renovation property value.

This is what makes RenoFi better than most traditional lenders, as RenoFi Loans use the after-renovation value of a home. This means it considers how your home improvements will increase what your home is worth, giving you access to more money. Many homeowners see their borrowing power boosted by more than 11 times.

Final Thoughts

When you have bad credit, securing a home improvement loan presents challenges such as higher interest rates and limited options. But you do have options. You can opt for a co-signer to improve your rates and terms or explore other possibilities through specialized lenders, government programs, or collateral-backed loans. 

That said, it’s also important to work on improving your credit score as soon as possible. A higher score can lead to better loan terms and increased borrowing opportunities. At RenoFi, we’re here to help you overcome these obstacles and obtain the financing you need to fund your next project. If you’re ready to take the next step, use our loan calculator to better understand your maximum borrowing power, potential rates, and payments. 

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