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Converting HELOC to HEL - Any advantages to my score??

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Anonymous
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Converting HELOC to HEL - Any advantages to my score??

We have a HELOC of $76,000, with a principle balance of $70,000. (Bad mistake to get a HELOC - I learned my lesson the hard way) 

Our scores are 713 TU, 724 EQ, EX 699  We just got a contract on our house so we can move to Vancouver Washington (my husband got a new job there).  Our credit report states one of the factors that affected our score is "the proportion of revolving balances to revolving credit limits is too high".  I'm wondering if I should try to convert our HELOC to a HEL - would that help my score?  If so, is it easy to convert a HELOC? What are the pros can cons?   We have 6 credit cards, I have gotten all but two to under 10% utilization, but two have ~75% utilization.  I'll get one of those card balances to below 10% within the next 30 days, but I won't be able to get the other to any better than 50% in the next 60 days.  We plan on applying for our new mortgage within 60 days.   I really want to get our score as high as possible so we can take advantage of the best mortgage rates.

 

HELP!!!

 

 

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3 REPLIES 3
Lel
Moderator Emeritus

Re: Converting HELOC to HEL - Any advantages to my score??

Hello schnookums, and welcome to the FICO forums.

 

Because you have a high CL on your HELOC, it should not be included in the calculation for the utilization of revolving debt.  Even though HELOCs are technically revolving lines of credit, HELOCs with limits above a certain threshold (thought to be in the $40,000-$50,000 range) are scored as installment debt.  This applies even if the account is described as revolving on your credit report.  To be certain, you should calculate out what your utilization is both with and without your HELOC and see how this number compared to the calculated percentage that you get on your credit reports here.  It is possible that those two CCs with high util are causing that comment to be generated.

 

Why do you say that the HELOC was a mistake?  HELOCs typically have interest rates that are lower than fixed-rate home equity loans, and in the past couple years the interest rates on HELOCs have dropped along with the prime rate.  Of course, those rates aren't going to be low for very much longer, if interest rate predictions turn out to be true.

 

My HELOC allows me to convert part or all of my balance to a fixed rate installment loan.  Check to see whether yours has a similar provision; I believe it is a pretty common across lenders.  However, the fixed rate might be considerably higher than your current variable rate.

 

Just to clarify something - you're moving, and selling your current house?  If so, then the HELOC would be closed out at the time of the sale.  So a conversion isn't necessary, especially since it wouldn't make a tremendous impact on your scores.

Message 2 of 4
mrcpu1
New Visitor

Re: Converting HELOC to HEL - Any advantages to my score??

Hello -

I just recently discovered that the HELOC we've had for 10 years is just NOW recently being reported as a revolving line of credit, completely sqewing my fica score.  The original HELOC was through 3 mortgage companies ago and was reported as a real estate loan.  However since the latest aquisition,  it now reports as a revolving credit line.  The 'draw period' closed 5 years ago, so it's not much of a revolving credit, it's now an equity line.

 

I've talked to the bank that has the note, they won't help me change the reporting type, all I asked was can they report it as a real estate loan since it no longer has a draw or can they place a comment to indicate it's a Home Equity Loan so at least it's recorded that way to the credit agencies.  They have said no to both.


It looks like I have a $50,000 credit card with a $30,000 balance, the balance is right, but I don't have access to the funds anymore. 

 

What can I do?

Message 3 of 4
Lel
Moderator Emeritus

Re: Converting HELOC to HEL - Any advantages to my score??

Hi mrcpu1, and welcome to the FICO forums.

 

The first thing to know about HELOCs and FICO scores is that is does not matter how a HELOC is reported.  What matters is how it is scored.

 

HELOC are by definition revolving lines of credit.  And they are by nature a real estate loan, because the line of credit is secured by the equity in one's home.  So if your HELOC is reporting as revolving, then it is being reported accurately.  There's really no grounds to demand that it be reported any differently from the way it is now.  You asked nicely, got turned down, and there's probably nothing more that can be done.  To request that it be reported as a home equity loan is actually asking them to report it inaccurately, since they're two different financial products.

 

But the way that a HELOC reported - whether it be revolving or real estate or some other term - does not affect the way that HELOCs are treated by the FICO scoring models.  Like I mentioned earlier, in general HELOCs with CLs above the $40,000-$50,000 threshold are scored as installment debt and not revolving debt.  The precise number at which this switch occurs is not known, but I recall at least one person reporting that their $35,000 HELOC was not included in revolving utilization.

 

In my case, I have a HELOC with a CL close to $100,000.  It currently has a balance of about $83,000.  On Equifax, it is reported as "revolving".  On Transunion, it's reported as "overdraft/reserve checking".  Despite these designations, these accounts are not being included in my utilization of revolving credit, and my score isn't affected.

 

Have you determined for certain that your HELOC is being included in your calculation of utilization of available credit?  How much do you think you score has dropped due to changes in your HELOC?  And have you reviewed the rest of your credit report to make sure that there is nothing else that could cause a drop in score?

 

Since you're out of the draw period, you could consider converting your HELOC into a home equity loan.  You'd no longer have a variable interest rate, but the conversion would probably result in a higher fixed rate.  If you did this, then your new loan would be reported and scored as installment debt.

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