Because of their low interest rates and ease of use, lines of credit are popular credit products in Canada. However, because they are generally available mostly from banks rather than alternative lenders (though some alt lenders do offer them), lines of credit often have strict requirements and can be more difficult to access than personal loans. Not only will you be expected to have a solid credit report and good credit history, you’ll also need to have a good credit score to qualify — especially if you want the lowest interest rates.
While all lenders have their own requirements as to what credit scores they want their applicants to have for a line of credit, it’s a good bet that some lenders will approve applicants with scores that hover around 660 to 712, which qualifies as a Fair score. However, applicants with credit scores that range from 713 (i.e. those that fall into the “Good” range) and above have the best chance of getting approved.
No matter what lender you go to, one thing is certainly true: the higher your credit score, the better chance there is that you’ll get approved for a line of credit or home equity line of credit.
What is a Good Credit Score?
To understand what credit score is needed for a line of credit, it’s essential to have a clear idea of what constitutes a good credit score. In Canada, credit scores range between 300 and 900, with the average score being 672. But what exactly do those three-digit numbers mean? Though standards can differ slightly among lenders and credit bureaus, in general, credit scores are ranked as follows:
300 to 574: Poor
575 to 659: Below Average
660 to 712: Fair
713-740: Good
741-900: Excellent
If you are young and have not had a lot of time to build up your credit history, are new to Canada or have had trouble paying back loans in the past or have a bankruptcy on your credit file, you will likely have a low score. If you’ve been using credit products like credit cards and loans for many years and managed your money responsibly, you’re probably one of the lucky Canadians with a good credit score.
What Credit Score Is Needed for a Personal Line of Credit?
A line of credit is a common kind of loan where a lender like a bank or alternative financial institution allows a client to borrow money up to a pre-determined limit. You can use the funds any way you want to and you’ll usually have to pay a variable rate of interest that is tied to the bank’s prime rate. Additionally, you only have to pay interest on the money you borrow. You can take out what you want (up to your credit limit) and then repay the money on your own schedule. The only requirement is that you make minimum monthly payments that cover the interest you owe. Aside from that requirement, you’re free to use the funds how and when you want.
Even though a line of credit doesn’t work exactly like a personal loan (in which you’re just paid a lump sum and must follow a set payment schedule), it is nonetheless a credit product and as such, lenders will want to see the credit score of potential borrowers.
Lenders view credit scores as good indications of how credit worthy a person is and thus, they rely on them to help gauge how likely a person is to repay a loan on time and in full. Most lenders will be hesitant to give a line of credit to those with bad credit or those who have a history of not repaying loans on their credit file.
Getting a Personal Line of Credit with a Poor Credit Score (300 to 579) and a Fair Credit Score (580 to 669)
It will be very difficult to get a line of credit with a bad credit score as most lenders will see you as a credit risk and believe that you are likely to default on your repayment obligations. While there are creditors who offer personal loans (that come with high interest rates) to those with bad credit, it’s much harder to get a line of credit because they’re available mainly from traditional banks and these institutions generally don’t take risks with clients with bad credit scores.
Getting a Personal Line of Credit with a Good Credit Score (670 to 739)
With a good credit score, you’re likely to be considered for a line of credit, though you may be offered a higher interest rate than if you had a stellar credit score.
Getting a Personal Line of Credit with a Very Good Credit Score (740 to 799) and an Exceptional Credit Score (800 to 850)
If you have a very good or exceptional credit score, lenders won’t see you as a credit risk and you should have no problem getting a line of credit with the best possible interest rate.
What Credit Score Do You Need for a Home Equity Line of Credit?
A home equity line of credit (known more commonly as a HELOC) is a form of credit that you secure with your house. The lender uses the value of your home as collateral against non-payment. A HELOC is a very serious obligation that should not be entered into lightly because if you default on your payments, the lender would have a legal right to seize your home.
Much like a line of credit, home equity lines of credit are a kind of revolving credit. You can borrow as much as you want up to your pre-determined limit and pay it back and then borrow it again and continue to do so as long as your HELOC account is in good standing.
Getting a Home Equity Line of Credit with a Poor Credit Score (300 to 579) and a Fair Credit Score (580 to 669)
Because you’re putting your house at risk, lenders won’t extend people a HELOC to people with bad credit scores, making a HELOC potentially harder to get than a line of credit. You may be able to get one with a fair credit score though your chances would be improved if you have a relationship with the bank.
Getting a Home Equity Line of Credit with a Good Credit Score (670 to 739)
With a good credit score you won’t usually have a problem getting a HELOC but you won’t get top rates.
Getting a Home Equity Line of Credit with a Very Good Credit Score (740 to 799) and an Exceptional Credit Score (800 to 850)
Banks won’t be hesitant to offer those with very good and exceptional credit scores a HELOC and you’ll also get the best possible interest rates, which will help save you significant money over time.
Can You Get Declined for a Line of Credit?
You can certainly get declined for a line of credit, especially if you have a low credit score and a history of defaulting on payments. The best way to prevent getting declined is to improve your credit score by doing things like always paying your bills on time and increasing your credit history.
The Bottom Line
Though lenders will each have their own qualification requirements when it comes to credit scores, you could get approved for a line of credit if you have a score of 660. However, your chances of approval (and getting better interest rates) increase if your score is closer to 713 and above.
