Jump to content

HELOC and fico, what will happen?


afcs
 Share

Recommended Posts

Stuck and unsure what to do. Recently closed the deal on a HELOC for $12,500.00. My absolute and main purpose is to pay off the majority of my revolving debt. I have heard that the HELOC may be reported as an installment loan, 2nd mortgage, or revolving credit line which may do more harm then good to my credit score. My question is:

1. If it is reported as a revolving credit line, would it be best to just not use the HELOC and leave things as they were. My theory is with the increase in credit line(the $12,500), it would change my debt load ratio which should increse my fico score? Am I correct?

When I got the loan through homeloancenter the gentleman said I could come back in 6 months and refinance with no additional closing since my scores would have increased dramatically and I would get a better rate.

Presently FICO's are:(without HELOC)

TU 657

EQ 628

EX 598

Link to comment
Share on other sites

That is certainly a different scenario. To understand you better, you took out a HELOC for the sole purpose of paying down the majority of your debt. Now you are concerned with your credit score effects and whether or not you should use the HELOC.

I can understand your theory on the account status and the credit score increase created by the new $12,000 line of credit. Yes, unused, this would provide a good boost to your credit scores.

The only wrong thing is... There is no zero cost mortgage loan. At the very least, there has to be a recording fee, and I am pretty certain that they would also pull your credit again to make sure that your credit score did increase (that costs), and unless there is a volunteer organization doing this loan, there must be some kind of labor cost involved. I would also carefully review a clause for early termination penalties. I can really think of no HELOC offered that does not have one. There is also something called "Yield Spread." This is money paid to the lender in the exchange of charging ypu higher interest rates. A 3% yield spread on a HELOC would result in a higher margin on your home equity loan, which when added to the prime interest rate would result in paying a higher interest rate than you would have to pay, than if you were charged the fees for the loan.

Since you have not spent the proceeds of the HELOC, please use good judgment because you are creating a second obligation to your home, and sometimes misusing a line of credit like this can create more hazard to your finances than you had originally anticipated.

Link to comment
Share on other sites

There were many fees once again that I paid at closing (i.e. loan origination, administration, processing recording, etc). Definitely I know if I do decide to not use the loan, I would have to pay these back because they were all rolled up in the loan itself totalling at $1,561.00 for closing.(correct me if I am wrong) I have read through the documents and see no mentions of an early termination fee. My problem is I am not sure if my score would definitely increase if I pay off the revolving credit, leave them open, but now have a HELOC at 12,500 maxed out.

Link to comment
Share on other sites

I have never been real fond of securing, unsecured debt, but disregarding that fact, here goes.

Your credit score is a reflection of how you pay your bills (timliness) and the utilization of credit to name a couple of key factors. Paying creit obligations on time, and keeping balances as low as possible, are key positives to the credit score.

The major detriments to credit scores are collections, judgments and chargeoffs. When these types of credit are rerported, they have the most negative impact in pulling a credit score down. Take care of these issues first, and let your on time payments take care of the remainder of your credit score. I cannot recall seeing a 540 credit score, ever just because credit card balances were too high. It is the other factors, and late payments that pull credit scores down to these levels. Time will heal all wounds with a good pay history and no open collections, judgments or chargeoffs.

Revolving debt utilization should be the next goal in maximizing credit scores. Also, whwn applying for new credit, these monthly obligations are calculated into the amount of payment you will be able to afford, and credit limits you would be able to receive on future credit cards. Low payment obligation will enable creditors to take a bigger risk in extending larger credit lines.

There is also the area of getting to life's ultimate goal of no debt. There are several ways of reaching this goal, and exchanging high interest rate debt for low interest rate debt is a good start. The importance here (if you ar comfortable in your current monthly outlays, would t retire one debt at a time, and apply the payment amounts of that debt to paying off more of the principal on other debts. Sytart with the lowest baalnce and highest interest rate, and pay that off. Next take the payments from that debt and apply that in addition to what you are currently paying on the next lowest balance, continuing this cycle until all debt is retired.

Ultimately, having five to seven open accounts, will maximize your creit scores as well, so use judgment in your decision to actually close any accounts.

Link to comment
Share on other sites

Yes, thank you for all responses. I have never had any collections, and only 1-90 day late in nov 2002. Other than that my only down fall is high debt load where the 5 of my revolving credit cards are pretty much maxed. (lord help me) But unfortunately like many others, my scores are low 598 to high 657. So I am assuming it is because of my maxed out cards. Am I correct in assuming so, and if so this is the reasoning behind my madness. I think it is always better to get opinions from others that has been there wether than going to pay someone for legal advice.

Link to comment
Share on other sites

If there are no other baddies on your credit report, then the high credit utilization must be the cause of your credit scores. You have a wide discrepency between two of your credit scores. Usually this will indicate one credit account showing on one bureau, that does not show on another credit bureau. I would attempt to identify this account first, and do what is necessary to bring that into balance. This seems to be a major culprit. Outside chance that your ninety day late is only reporting on the low bureau, but closer examination will reveal what is causing that score to be significantly lower than your other scores.

One thing that does scare me, is in the past you have managed to run all your credit cards to the max. If you do not take cae of the HELOC, that wild little hair may run this balance to the max also, without doing what you had initially set out to do with the HELOC. Tread these waters carefully.

How is your day to day budget? Is it a struggle? Can you effectively use the snowball method of paying down your existing credit card debt, without using much (if any) of your HELOC, and still manage? If you want, you could post each of the credit cards (do not need names), credit limits, balance oed and interest rates on each. From this information, we should be able to get you set with good advice as to an attack plan for getting these balances down and advise to close accounts if necessary.

So far, I a thinking five credit cards, and a mortgage, and a HELOC. Are there any other installment loans or other accounts open?

Link to comment
Share on other sites

Well yes I do agree. There are several account on my higher score report that is not listed on my lower score report. Firsty, if I may, how would I go about getting the lower credit report to list those accounts. Several of them cannot be contacted or no longer exist(i.e. changed names or they were about 10 years ago when I got them). Could I send for example, exquifax a copy of my transunion report as proof to get them to update it?

Link to comment
Share on other sites

There are several account on my higher score report that is not listed on my lower score report. Firsty, if I may, how would I go about getting the lower credit report to list those accounts. Several of them cannot be contacted or no longer exist(i.e. changed names or they were about 10 years ago when I got them). Could I send for example, exquifax a copy of my transunion report as proof to get them to update it?

I do not think that you would have much luck on this (especially if the creitor no longer exists). A creditor can choose whether or not they want to report to credit bureaus, and some creditors do not report to all three, or any combinations of the three. They also must pay to submit information to the bureaus. It is best to concentrate on your current accounts, and work forward.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
 Share

×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.. For more information, please see our Privacy Policy and Terms of Use.