A line of credit (LOC) can be one of the most flexible ways to borrow money. Unlike a traditional loan, it gives you access to funds you can draw on when needed, and you only pay interest on what you actually use. However, you may wonder if a LOC is a feasible option if your credit history is less than perfect.
The short answer is yes — it’s possible to get a line of credit with bad credit, but your options will be more limited and often more expensive. This article will run through what you can expect from an LOC with poor credit, where you can apply, and what steps you can take to improve your chances of being approved.
Key Points
- You can still get a line of credit with bad credit, but it will likely require collateral or a private lender.
- Interest rates and credit limits are often higher and lower, respectively, than for borrowers with good credit.
- Secured lines of credit, such as those backed by home equity or a vehicle, may be more accessible.
- Improving your financial profile (income, debt-to-income ratio, or getting a cosigner) can increase approval chances.
Can You Get A Line Of Credit With Bad Credit?
Yes, if you have a poor credit score, you may still be eligible for a line of credit.
However, mainstream banks are less likely to approve you for an unsecured LOC unless you have strong income or collateral. This means your main options are:
- Secured Line Of Credit Through A Bank: A secured LOC requires you to pledge an asset, like your home, investments, or a vehicle.
- Private Lenders: These are alternative financial institutions, like a credit union or online lender, that specialize in lending to consumers with lower credit scores.
Just keep in mind that products designed specifically for higher-risk borrowers will come with stricter conditions and higher costs.
| What’s Considered Bad Credit? Credit scores in Canada range from 300 to 900. Here’s what each range group generally means: 300–559: Poor credit 560–659: Fair credit 660–724: Good credit 725–759: Very good credit 760–900: Excellent credit If your score is below 660, the majority of lenders will consider you a bad credit borrower, which makes qualifying for unsecured credit products more challenging. Don’t know your credit score? Check it for free on Loans Canada Compare Hub. |
Line Of Credit Features You Can Expect With Bad Credit
Even with poor credit, a line of credit still comes with the same core features that make it appealing compared to other types of borrowing:
- Revolving Credit: A line of credit lets you borrow, repay, and then borrow again, as long as you stay within your approved credit limit. This makes it a useful tool for covering recurring or unpredictable expenses, since you don’t need to reapply each time you need funds.
- Interest-Only Payments: In many cases, you’re only required to pay interest on the portion of the credit you’ve used, not on the entire balance available to you. This can help keep payments lower when money is tight, though making more than the minimum is always recommended to avoid carrying debt long-term.
- Flexible Access: Instead of receiving a lump sum, you can withdraw funds whenever you need them. For someone with bad credit, this flexibility can provide breathing room for emergencies or irregular cash flow, without taking on unnecessary debt all at once.
That said, with a bad credit LOC, you may face a lower credit limit, higher interest rates, or be required to secure the credit against collateral such as your home or vehicle. Some lenders also charge setup or annual fees that wouldn’t apply to borrowers with stronger credit.
What Kind Of Interest Rates Can You Expect?
Interest rates for lines of credit vary widely depending on the lender, and whether the loan is secured.
- Secured Lines Of Credit: These typically come with lower rates since collateral reduces lender risk. Rates are typically variable and are tied to the lender’s prime rate plus a margin.
- Unsecured Lines Of Credit: With bad credit and no security, you’ll pay a higher rate on your unsecured LOC.
- Private Lender Loans: Rates associated with these loans often fall in the middle, but are generally higher than bank rates.
Learn more: Best Line Of Credit Rates In Canada 2025
Where Can You Get A Line Of Credit With Bad Credit?
If you have bad credit, the following lender types may offer you an LOC. But the lender you apply with will determine whether collateral is required.
Banks
Traditional banks and credit unions may not approve unsecured LOCs for bad credit borrowers. However, they may consider you for a secured LOC, such as a home equity line of credit (HELOC), investment-backed LOC, or auto-backed LOC.
Private Lenders
Alternative and online lenders often cater to borrowers with weak credit histories. Approval is typically based more on your income and repayment ability than your credit score.
That said, interest rates and fees tend to be higher with private lenders. Fortunately, some alternative digital platforms offer no-interest credit lines, like MoneyUp and Nyble:
How To Get Approved For A Line Of Credit If You Have Bad Credit
Here are a number of potential options you’ve got when looking to improve your chances of approval for a LOC.
Improve Your Debt-to-Income Ratio
Lenders will look closely at your income compared to existing debts. Paying down balances or consolidating loans before you seek a LOC can improve your odds of approval.
Increase Your Income
Even part-time or side income can strengthen your application and show lenders you are capable of managing repayments.
Get A Guarantor Or Cosigner
A family member or friend with stronger credit may cosign the LOC, reducing lender risk and leaving you with much better options in terms of rates and terms.
Opt For A Secured Line Of Credit
Collateral will significantly boost your approval chances. The most common options include:
- Investment-Backed LOCs: Use a portion of your investment portfolio as security.
- Home Equity LOCs: Pledge your property to access higher limits at lower rates.
- Car-Backed LOCs: Put up your vehicle’s title as collateral.
Request A Smaller Amount
Lenders are more likely to approve smaller limits, especially if you’re considered high-risk. If it’s feasible for your budget, consider lowering your preferred amount.
Things To Remember When Getting An LOC With Bad Credit
Before applying for a line of credit with a weak credit profile, consider the following:
- Cost. Suppose you borrow $1,000 from a private lender at 29% interest. If you carry the balance for a full year, you’d pay around $290 in interest, which works out to almost a third of your borrowed amount. By contrast, a secured LOC at 9% would cost just $90 in interest for the same balance. That’s why it can really pay to shop around, even if you feel your options may be limited due to a lower credit score.
- Risk. Collateral-backed LOCs reduce interest rates, but they carry the risk of losing your home, car, or investments if you default. If you decide to opt for a secured LOC, be sure to understand the risks involved.
- Credit Utilization. Using too much of your available credit can also hurt your score. That’s why it’s wise to aim to keep your credit utilization under 30% of your total limit.
- Minimum Payments. Interest-only payments can keep you in debt longer. Paying extra toward the principal reduces overall costs.
- Compare Offers. Rates and terms will vary significantly between lenders. Always compare quotes before committing to a lender.
Alternatives To A Line of Credit
If a traditional line of credit isn’t available or affordable because of a low credit score, you still have several practical options. Below are the most common alternatives, how they work, and when each makes sense.
Personal Loans (Secured Or Unsecured)
A personal loan gives you a lump sum you pay back over a set term. Rates and approval depend on whether the loan is secured (backed by an asset) or unsecured.
- How it works: Apply with a bank, credit union, or online lender. If approved, you receive the full amount and make insyallment payments until the loan is repaid.
- Best for: Predictable, fixed-cost borrowing (buying a laptop, consolidating small debts).
Learn more: Personal Loan vs. Line of Credit
Credit Cards
Using a regular credit card can be convenient, especially if you have a low-interest promo or strong rewards to benefit from.
- How it works: Charge purchases and pay the card issuer monthly. Some cards offer introductory 0% APR on certain purchases, or free balance transfers for a limited period.
- Best for: Short-term financing when you can pay off the full balance by the due date before interest accrues, or when you want rewards/insurance perks.
If you don’t have a credit card or are unable to get approved for one, a secured credit card may help. A secured card requires a cash deposit that typically doubles as your credit limit. It’s not a loan per se, but will provide you with borrowing ability while also helping to rebuild your credit score.
Learn more: Compare A Line Of Credit vs. A Credit Card
Buy Now, Pay Later (BNPL)
BNPL (e.g., Klarna, Afterpay, PayBright/Affirm) splits eligible purchases into several interest-free or low-interest installments.
- How it works: Apply at checkout for qualifying purchases, make an initial payment, then make additional installments over a set payment schedule (often interest-free if paid on time).
- Best for: Financing a specific purchase (electronics, accessories) at 0% when available.
Overdraft Protection
Overdraft protection lets you cover occasional shortfalls on your chequing account, usually as a linked line or small overdraft facility.
- How it works: The bank covers transactions that exceed your balance, and you repay over time with added fees/interest.
- Best for: Emergency, one-off shortfalls (e.g., a bill or grocery purchase).
Conclusion
While it is possible to get a line of credit with bad credit in Canada, the path is more limited and costly. Private lenders and secured products are your most realistic options, while traditional banks tend to be stricter. To improve your chances, work on strengthening your financial profile, consider offering a source of collateral, and be sure to carefully compare all your available offers.
