HELOC Wants Cards Closed

Anonymous · ‎10-16-2017

I currently have a HELOC through a local credit union and am looking to refi the loan from veritable to a fixed. At the same time I have a few credit cards which I recently racked up debt and am paying interest. I wanted to lump those into the HELOC as well. My credit union is saying they want all my cards paid off and closed, that once the loan is funded that they will check checks to each card along with a letter on closing the accounts. I do not want the accounts closed.

Over the years I have greatly utilized points racking in over $5,000 worth of travel and other things. This year and next, at least $7,000 for each year in travel alone.

If I tell the credit union I will do it, how can I prevent the cards from actually being closed? My thought was to add a little debt to each card before they received the checks which I think then the cards would still be active. Or maybe they wouldn't work and maybe there is another route to go? I'm still going to try to not have them make me close the cards but I'm not sure they will move on it.

Anonymous · ‎10-16-2017

@Anonymous wrote:
I currently have a HELOC through a local credit union and am looking to refi the loan from veritable to a fixed. At the same time I have a few credit cards which I recently racked up debt and am paying interest. I wanted to lump those into the HELOC as well. My credit union is saying they want all my cards paid off and closed, that once the loan is funded that they will check checks to each card along with a letter on closing the accounts. I do not want the accounts closed.

Over the years I have greatly utilized points racking in over $5,000 worth of travel and other things. This year and next, at least $7,000 for each year in travel alone.

If I tell the credit union I will do it, how can I prevent the cards from actually being closed? My thought was to add a little debt to each card before they received the checks which I think then the cards would still be active. Or maybe they wouldn't work and maybe there is another route to go? I'm still going to try to not have them make me close the cards but I'm not sure they will move on it.

Cards don't need to be at a $0 balance to be closed.

Your CU is trying to help you not get into trouble again. This is often a general practice of consolidation loans. If you want the loan, abide by their terms. If you don't, don't.

Don't be shady.

DaveInAZ · ‎10-16-2017

Welcome to MyFico forums!

I would tell your local credit union that your answer is No!, you don't get to tell me how to run my personal finances.That demand is completely unreasonable, and stupid - what is to prevent you from opening new credit cards once your Heloc is closed?

Look elsewhere, there are many options for HELOC loans. I closed a HELOC with Penfed CU in August, a variable rate of Prime +0%, currently 4.25%, but it is interest only and 80% LTV. They required me to have them issue checks from the funded HELOC to pay off around $5k remaining on a car loan and $3500 on a CC that was 0%, but that was to meet DTI (Debt to Income ratio). I have 11 CCs with over $100k in available credit and they mentioned any concern over them.

I wouldn't run of the risk of going through with this and hope you can out smart the credit union. They usually pull your credit report right before closing & funding and wouild likely see the balances. Only you can close your accounts, and to me that is sheer arrogance that they demand to send a letter with payoff check to try to close the account.

What is the APR of your current variable HELOC? Are you sure it's worth it to convert to a fixed rate? I don't see interest rates going up much over the next few years. I just read an article this weekend that said Fed Reserve Chair Yellen is "mystified" by the lack of inflation with low unemployment and economic growth. I'm not, consumer spending drives economic growth & inflation, and alot of folks who lost jobs in the 2008 recession took lower paying jobs and wage growth is still anemic.

DaveInAZ · ‎10-16-2017

@Anonymous wrote:
Cards don't need to be at a $0 balance to be closed.

Your CU is trying to help you not get into trouble again. This is often a general practice of consolidation loans. If you want the loan, abide by their terms. If you don't, don't.

Don't be shady.

Well, our replies were pretty much the opposite, lol. Just a sore point for me - years ago when I was getting a mortgage from a small local bank and the loan officer told me she was going to require me to close every single credit card, scolding me that I had "way too many CCs". It was all I could do to not cuss her out over the phone, but I did tell her "H*ll no! and That's the stupidest thing I'ver ever heard". I went through a mortgage broker and got my mortgage and that lender never mentioned my CCs.

Loan officers need to just do their jobs and ensure the borrower meets all requirements for income, credit & DTI, and leave the free financial management advice to the Dave Ramseys of the world.

Anonymous · ‎10-16-2017

@DaveInAZ wrote:
@Anonymous wrote:
Cards don't need to be at a $0 balance to be closed.

Your CU is trying to help you not get into trouble again. This is often a general practice of consolidation loans. If you want the loan, abide by their terms. If you don't, don't.

Don't be shady.
Well, our replies were pretty much the opposite, lol. Just a sore point for me - years ago when I was getting a mortgage from a small local bank and the loan officer told me she was going to require me to close every single credit card, scolding me that I had "way too many CCs". It was all I could do to not cuss her out over the phone, but I did tell her "H*ll no! and That's the stupidest thing I'ver ever heard". I went through a mortgage broker and got my mortgage and that lender never mentioned my CCs.

Loan officers need to just do their jobs and ensure the borrower meets all requirements for income, credit & DTI, and leave the free financial management advice to the Dave Ramseys of the world.

I totally hear your point too.

The only consideration I have for such a request is that folks that run up debt often have nowhere to turn for help once they're in that position. I was in trouble for a decade before my BK and couldn't get any kind of assistance with lower rates/consolidations/etc . . . as we've seen happen to so many people here.

If someone is borderline and a lender wants to extend help with a condition vs. not helping at all, I can kind of give them some credit for proposing a solution w/ conditions vs. an absolute NO.

I should have elaborated a little more and said that if the OP doesn't want *this* lender's $$, then to try elsewhere or consider something else.

We did agree on not trying to outsmart the system, though

Anonymous · ‎10-16-2017

Thanks for the replies. I also spoke to a broker that I generally have gone to in the past for any 1st mortgages and he said that the credit union can still close the accounts even if I added more to the balance. I am going to see what he can do if I just apply the 1st and HELOC plus extra cash into a new 1st mortgage. Being my current 1st is 2.99% I'd hate to go up but in the long run maybe the best option. My current HELOC I think goes from a 1.99% promo to now I think 4% but personally I have expected rates to go up more so I wanted to move to fixed. And hopefully to also roll in the other credit card debt.

I would say that the amount I applied and was approved for is a lot higher than what I need so maybe if I ask for less they wouldn't be asking me to close the accounts. And maybe I also can shop around for someone who won't tell me to close them.

Anonymous · ‎10-17-2017

@Anonymous wrote:
I currently have a HELOC through a local credit union and am looking to refi the loan from veritable to a fixed. At the same time I have a few credit cards which I recently racked up debt and am paying interest. I wanted to lump those into the HELOC as well. My credit union is saying they want all my cards paid off and closed, that once the loan is funded that they will check checks to each card along with a letter on closing the accounts. I do not want the accounts closed.

Over the years I have greatly utilized points racking in over $5,000 worth of travel and other things. This year and next, at least $7,000 for each year in travel alone.

If I tell the credit union I will do it, how can I prevent the cards from actually being closed? My thought was to add a little debt to each card before they received the checks which I think then the cards would still be active. Or maybe they wouldn't work and maybe there is another route to go? I'm still going to try to not have them make me close the cards but I'm not sure they will move on it.

You can't. They'll send a letter directly to each creditor forcing you to close the account. The letters will require your signature and the date before they'll accept your HELOC application. If I ran a credit union I would also make you sign an agreement "to not contact the creditors and re-open your accounts, or else we'll pull the rug out from underneath your line of credit."

Accounts can be closed with a balance reporting, so that won't stop anything. The credit union is making you close the cards for a reason... You're too much of a credit risk under your current circumstances, but they're willing to let you sneak in with that LOC if you're wiling to reduce your risk to them by doing what they ask. They don't want you to charge the cards back up in the future and ultimately become twice as much of a risk to default than you are now. I would take the CU's offer as it's there to benefit you more than anything, trust me.

Anonymous · ‎10-17-2017

@DaveInAZ wrote:
Welcome to MyFico forums!

I would tell your local credit union that your answer is No!, you don't get to tell me how to run my personal finances.That demand is completely unreasonable, and stupid - what is to prevent you from opening new credit cards once your Heloc is closed?

Look elsewhere, there are many options for HELOC loans. I closed a HELOC with Penfed CU in August, a variable rate of Prime +0%, currently 4.25%, but it is interest only and 80% LTV. They required me to have them issue checks from the funded HELOC to pay off around $5k remaining on a car loan and $3500 on a CC that was 0%, but that was to meet DTI (Debt to Income ratio). I have 11 CCs with over $100k in available credit and they mentioned any concern over them.

I wouldn't run of the risk of going through with this and hope you can out smart the credit union. They usually pull your credit report right before closing & funding and wouild likely see the balances. Only you can close your accounts, and to me that is sheer arrogance that they demand to send a letter with payoff check to try to close the account.

What is the APR of your current variable HELOC? Are you sure it's worth it to convert to a fixed rate? I don't see interest rates going up much over the next few years. I just read an article this weekend that said Fed Reserve Chair Yellen is "mystified" by the lack of inflation with low unemployment and economic growth. I'm not, consumer spending drives economic growth & inflation, and alot of folks who lost jobs in the 2008 recession took lower paying jobs and wage growth is still anemic.

Nothing arrogant about it at all. It's the credit union's money... They're paying off the OP's cards for them so they can dictate the terms of the loan, which in this case requires the OP to close their accounts. The credit union doesn't want to give the OP a loan to pay off the cards, just to have them charge the cards back up in the future and possibly default on the HELOC payments. Once the HELOC is established the credit union may do occasional soft pulls (similar to NFCU's quarterly pulls) to determine if the OP has then become too much of a credit risk once again, and then at that point take AA on the HELOC account.

Not all lenders are the same, but if this CU is attaching such terms to a HELOC, then chances are other lenders like Penfed may deny the OP outright as being too much of a credit risk with no, if's, and's, or but's about it.

marty56 · ‎10-17-2017

I would try the refi minus the credit card debt and see if you can do that. I would not close the CC cards unless you couldn't afford the payments on the current loan.

1/25/2021: FICO 850 EQ 848 TU 847 EX

Anonymous · ‎10-17-2017

Looking for a HELOC when ones credit card balances are high across multiple cards was a big red flag during the previous housing crash.

It's not uncommon now for banks to just deny someone entirely for a HELOC even if their FICO Scores are high but they carry large debts across many cards.

Pay down the balances and try applying again there. Or elsewhere.