A line of credit is a flexible way to borrow: the lender approves a limit, you draw what you need when you need it, and you pay interest only on the amount you have actually drawn. With bad credit, that flexibility gets expensive or disappears altogether, because the lender is taking a bigger risk on whether you will repay. This guide explains what lines of credit are available with a low score, what they cost, the secured options that are usually cheaper, and the alternatives that are often a better first step.
This article is general educational information only, not personal financial advice. The figures below are market averages and published examples, not offers: any real line of credit will have its own rate, fees, and terms, and those depend on your credit, your income, and the lender. Our guide to what a credit score is and why it is important explains the score that decides most of these answers.
What Is a Line of Credit, and How Is It Different From a Loan?
A line of credit is revolving credit. The lender approves a maximum – say $5,000 – and you can borrow any amount up to that limit, repay it, and borrow again, much like a credit card. You pay interest only on the amount you have drawn, not on the full limit, so a $5,000 line with $1,000 drawn costs interest on $1,000 only. Most personal lines of credit carry a variable interest rate, which means the rate and the payment can move over time.
A loan works differently. A loan gives you one lump sum upfront, you pay interest on the whole balance from day one, and you repay it in fixed monthly instalments over a set term. Once you have paid part of a loan down, you cannot borrow that money again; you would need a new loan. The line of credit’s advantage is flexibility: it suits costs that arrive in stages or are hard to predict, while a loan suits a single, known cost. Our guide to figuring out monthly payments on a loan explains the instalment side of that comparison.
The common types are personal lines of credit, home equity lines of credit (HELOCs), business lines of credit, and overdraft lines attached to a current account. They share the same structure – a limit, draws, and interest on what is drawn – but the collateral, the rates, and the risks differ sharply, and that difference is what matters most with a low credit score.
What Counts as Bad Credit?
Bad credit usually means a FICO score in the poor band, 300 to 579, or at the low end of the fair band, 580 to 669 (myFICO, 2026). Lenders set their own cut-offs, and each one weighs your history differently, but below 580 is where unsecured borrowing mostly disappears: most mainstream lenders will not approve an unsecured line of credit at that level, and those that do charge for the risk.
A low score usually comes from a specific history: missed or late payments, balances close to the limit, accounts in collections, a bankruptcy, or a very thin file with too little history to judge. Payment history alone is 35% of a FICO score and amounts owed is 30%, so the two together explain most low scores (myFICO, 2026). Before applying for any line of credit, it is worth pulling your free weekly reports at AnnualCreditReport.com and checking for errors, because a wrongly reported late payment or a balance that was never yours can be dragging the score down for no reason (FTC, 2023).
Unsecured Lines of Credit With Bad Credit: What to Expect
Unsecured lines of credit – those with no collateral behind them – do exist for borrowers with low scores, but they are rare and costly. Because the lender has nothing to fall back on if you stop paying, it compensates with a higher rate, a lower limit, and more fees. Expect an annual percentage rate well above the market average: the Federal Reserve reported an average APR of 22.32% on credit card accounts assessed interest in 2025 (Federal Reserve, 2025), and subprime unsecured credit lines are typically priced higher still, often with annual fees, draw fees, or origination fees on top.
Approval is also harder. The lender will check your income, your existing debts, and your employment, and will usually require a debt-to-income ratio it is comfortable with. A hard inquiry goes on your report with each application, and several applications in a short period can lower your score further, so applying to many lenders at once to see who says yes is a costly strategy. If you are declined, the lender must tell you why, and that reason is worth reading: it usually points to the exact factor – a missed payment, a high balance, a short history – that you need to fix first.
Watch for three features in any offer. First, the rate is usually variable, so the payment can rise even if you borrow nothing more. Second, some lines carry minimum draw requirements, meaning you must borrow a set amount each time you use the line, which can push you to borrow more than you need. Third, fees can eat the limit: an annual fee of $100 on a $1,000 line is 10% of the credit before you have drawn a dollar.
Secured Lines of Credit: The Cheaper Route
A secured line of credit puts collateral behind the borrowing, and that lowers the lender’s risk – and usually the rate. The two common forms are a savings-secured line of credit, where your own deposit in a savings account secures the line, and a home equity line of credit, or HELOC, where the equity in your home secures it. A savings-secured line is the smaller and simpler of the two: the limit is usually close to the deposit, the rate is far lower than an unsecured line, and the payments are reported to the bureaus, so it builds credit as well.
A HELOC is larger and riskier. It is a second mortgage: when you already have a mortgage, a HELOC creates a second lien on the same property, and you pay it in addition to your first mortgage. Our guide to how a 2nd mortgage works explains the structure, including the draw period of around ten years followed by a repayment period in which the payment can jump sharply. The rate is usually variable, the lender can reduce or freeze the line if your home’s value drops, and the home itself is the collateral – if you cannot keep up the payments, the lender can foreclose. A HELOC is a reasonable tool for a planned home improvement with a firm cost, and a poor tool for covering everyday spending with a low credit score.
Credit unions are worth checking before any other lender. They are member-owned, not-for-profit institutions, and they often offer lower rates and more flexible underwriting than banks on the same product, including secured lines. The National Credit Union Administration (NCUA) insures deposits at federal credit unions, and membership is usually open to anyone who lives, works, or worships in a defined area, or who joins an affiliated association.
Safer Alternatives Worth Considering First
For many people with a low score, a line of credit is not the best first step, because the product itself is designed for borrowers the lender already trusts. A secured credit card is smaller and simpler: a deposit sets the limit, on-time payments build the record, and there is no temptation to draw a large amount at once. A credit-builder loan is even more structured: the lender holds the money, you make fixed monthly payments, and the payments are reported to the bureaus. Both build the history that a line of credit requires.
A co-signed loan is another option, but it carries a warning for both sides. A co-signer with good credit shares responsibility for the debt, which can get you approved at a better rate, but if you miss a payment the damage lands on the co-signer’s record as well as yours, and the co-signer is legally responsible for the full balance. It is a favour to ask carefully, not a formality.
Sometimes the best alternative is to improve the score before borrowing at all. Paying down a maxed-out card, catching up a missed payment, and disputing errors on your report can move a score faster than a new account can, and a few months of work can change the offers you receive. If the need is a specific, one-off cost, a small instalment loan with fixed payments may also be cheaper and easier to manage than a revolving line. Our guide to how a loan payoff calc works shows how to work out what any loan will actually cost over its life.
The Costs and Traps to Watch
The first trap is the variable rate. A line of credit that looks affordable at today’s rate can become unaffordable if rates rise, because the payment moves with the rate and with how much you have drawn. Before you accept a line, ask the lender to show you the payment at a rate two or three points higher than today’s, and check that your budget can absorb it.
The second trap is the fees. Read the agreement for the annual fee, the fee charged each time you draw, any inactivity fee for not using the line, and the late fee. Under the Truth in Lending Act, the lender must disclose the APR, the finance charge, and the total amount you will pay before you sign, so the real cost is in the documents even when the headline rate looks low. Compare the total cost, including fees, not just the rate.
The third trap is treating the line as spare money. A $5,000 limit can feel like $5,000 of income, but every dollar drawn is a debt with interest attached, and a revolving balance can sit for years if you only pay the minimum. Payday loans are not a substitute either: the CFPB explains that a typical two-week payday loan with a $15 fee per $100 borrowed equates to an annual percentage rate of almost 400%, with fees typically running $10 to $30 per $100 (CFPB, 2026), and the CFPB found that four out of five payday loans are rolled over or renewed within 14 days (CFPB, 2014). If a line of credit is out of reach, a payday loan is not the next step down – it is a different and far more expensive product.
Frequently Asked Questions
can i get a line of credit with bad credit
Yes, but the options narrow sharply. Unsecured lines are rare below a FICO score of 580 and carry high rates and fees when they are offered. Secured lines – savings-secured or a HELOC – are usually available at lower rates, because the collateral reduces the lender’s risk. A secured credit card or credit-builder loan is often a better first step.
what credit score do i need for a line of credit
There is no single published minimum; each lender sets its own cut-off. Unsecured personal lines of credit usually want a fair score (580 to 669) at minimum, and the best rates go to good scores (670 to 739) and above (myFICO, 2026). With a poor score (300 to 579), secured lines and credit-builder products are the realistic routes.
is a line of credit better than a credit card
It depends on what you need it for. A line of credit often has a lower rate and a higher limit than a card, which suits larger, staged costs. A credit card usually has an interest-free grace period on purchases, which a line of credit does not, and may offer rewards. Both are revolving credit, both charge interest only on what you owe, and both report to the bureaus.
what is the interest rate on a line of credit for bad credit
It varies widely by lender, collateral, and your exact score. As a benchmark, the Federal Reserve reported an average APR of 22.32% on credit card accounts assessed interest in 2025 (Federal Reserve, 2025), and unsecured subprime lines are typically priced above that. Secured lines are usually cheaper, and the only reliable figure is the APR disclosed on your own agreement under the Truth in Lending Act.
can a line of credit help my credit score
Yes, if the lender reports to the bureaus and you pay on time. On-time payments build the payment history that is 35% of a FICO score, and a line with a low balance relative to its limit can help utilisation. Missed payments have the opposite effect, and they can damage a low score quickly, so only draw what you are confident you can repay on schedule (myFICO, 2026).
The Bottom Line
Lines of credit for bad credit exist, but they are expensive, limited, and easy to misuse. An unsecured line with a poor score will carry a high rate, a low limit, and fees that eat into the credit before you use it. A secured line – backed by savings or by home equity – is usually cheaper, but it puts the deposit or the home at risk. For most people with a low score, the better sequence is to build first and borrow later: a secured card or a credit-builder loan, on-time payments every month, free weekly report checks for errors, and then a line of credit once the score has moved. The line will still be there in six months, and it will cost a lot less when you get there with a stronger file.