What will happen to my scores if I refi with a HELOC?

[Lel]

I've got a home equity loan with a balance of $98,000 at 8% fixed. The current interest rate on a Bank of America HELOC is 4.99%.

I'm thinking about refinancing my loan with the HELOC. I've been told that I can get line of about $150,000. Thus, I would be using about 66% of this credit line once the fixed rate loan is paid off with the HELOC.

Bank of America says that they report HELOCs as revolving, which thus puts it in the same category as credit card debt, even though I (like many others) am using it as a second mortgage.

I have a total of ~$80,000 of available credit in all my credit cards combined, and never carry a balance. Add this to the $150,000 HELOC and my total credit available is $230,000. Using $98,000 to pay off the original loan would put my utilization at 43% - well above the ideal 9% utilization ratio.

If I were to go ahead with the scenario above, my FICO scores would almost certainly drop from their current levels (785-795).

Is there any way to predict just how much they might drop, given the high utilization ratio? Has anyone out there done something similar, and if so, how did you scores react? Was it a temporary drop, or have your scores languished at the lower level? Is there any way to convince the CRAs to report the HELOC as a mortgage rather than a revolving line?

I'm trying to preserve my credit scores, because I hope to refi my first mortgage if jumbo conforming interest rates come down to traditional conforming levels. But I'm so tempted by the current low interest rates of the HELOC.

Message Edited by Lel on 04-03-2008 09:46 AM

[MidnightVoice]

My CU reports a Heloc as a mortgage type loan, but EX ignores them and calls it a credit card.  But at $150K it might not be revolving.

Just be aware that Helocs usually have a floating rate - mine is 5% now - but who knows where it will go.  The rates can't realistically frop much further

[Junejer]

Lel, I am about to find out the same thing. I was told a few weeks ago that the $150M amount is not counted in uti by FICO.

http://ficoforums.myfico.com/fico/board/message?board.id=generalcredit&message.id=86797&query.id=999...

[Lel]

MidnightVoice, did you suffer a drop in your scores after getting the HELOC?  Are you using a large amount of your line?

ByrdMan, I will be very interested in finding out how your scores react, though it will be difficult to parse out just how much of your score change is due to the HELOC, since you will have other new loans that are going to affect your score.  Are you going to max out the HELOC when you get it - that is, are you using this as an alternative to a fixed rate home equity loan?

I've read elsewhere on these forums that different CRAs report HELOCs differently.  I'll see if I can find the threads.  The B of A folks who are trying to sell me the HELOC all say that it won't affect my scores whatsoever, although they are very quick to acknowledge that it reports as revolving.  I don't really believe them, and that's why I'm on this board trying to find some folks like you with no conflicts of interest who can provide some real-world experiences.  Thanks for your replies.

[MidnightVoice]

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Lel wrote:

MidnightVoice, did you suffer a drop in your scores after getting the HELOC?  Are you using a large amount of your line?

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EX is 45-50 points lower than the others because EX calls it a CC.  But it is a low amount and at the moment I am using 75% of it.  If I had known about EX I might have asked for more - I just wanted to get 25% more than I needed (as a buffer) to do some things to the house and then pay it off.

Unless there is a disaster, it is now being paid off at a reasonable rate and has passed its peak level

[Junejer]

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@Lel wrote:

MidnightVoice, did you suffer a drop in your scores after getting the HELOC?  Are you using a large amount of your line?

ByrdMan, I will be very interested in finding out how your scores react, though it will be difficult to parse out just how much of your score change is due to the HELOC, since you will have other new loans that are going to affect your score.  Are you going to max out the HELOC when you get it - that is, are you using this as an alternative to a fixed rate home equity loan?

I've read elsewhere on these forums that different CRAs report HELOCs differently.  I'll see if I can find the threads.  The B of A folks who are trying to sell me the HELOC all say that it won't affect my scores whatsoever, although they are very quick to acknowledge that it reports as revolving.  I don't really believe them, and that's why I'm on this board trying to find some folks like you with no conflicts of interest who can provide some real-world experiences.  Thanks for your replies.

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I am going to use some of it as a means to recover some of the capital that I had to outlay as a downstroke. And I am going to complete my lower level.  This is also my vehicle that I will use to accelerate my mortgage payoff.

[Lel]

Hmm, a 50 point drop is more than I would be willing to tolerate, since it could exclude me from some of the better 30 year rates if I decide to refi the first mortgage.  But if I understand your message correctly, your credit line is not that high to begin with.  According to some speculation, a higher line might be considered a mortgage account rather than revolving, though there are still inconsistencies among the CRAs.

http://ficoforums.myfico.com/fico/board/message?board.id=loans&message.id=6633&query.id=101347#M6633

http://ficoforums.myfico.com/fico/board/message?board.id=loans&message.id=1846&query.id=101465#M1846

http://ficoforums.myfico.com/fico/board/message?board.id=loans&message.id=6239&query.id=101505#M6239

Grrrr....I wish these CRAs give us some straight answers.

[Anonymous]

My understanding of how HELOC's are scored is this:

Any HELOC amount above $40k-$50k are considered installment accounts, regardless of what the creditor calls them.

Below $40k or so are considered revolving.   When you hit the $40k-$50k range, it is not clear and FICO won't tell us.

This obviously is a problem for those who have HELOC's around $40k but have higher UTL.

Any thoughts anyone?

[Junejer]

Read the link in my above post.

[Lel]

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@Junejer wrote:
Lel, I am about to find out the same thing. I was told a few weeks ago that the $150M amount is not counted in uti by FICO.




Hi ByrdMan,

Did that HELOC hit yet? If so, how did you scores react?

So tempted to jump at that HELOC - B of A offering prime - 0.51%. So much better than my 8% home equity loan.