topic Re: Revolving vs installment in Understanding FICO® Scoring

Revolving vs installment

becker152 — Mon, 08 Oct 2007 16:39:32 GMT

I have read everyone's excellent advice on keeping revolving debt at 1-9% of total credit line or less, but have a question.

Are line of credits considered revolving debt? i have a line of credit back by my good credit score, it is not a term loan, but just an open line where 2% is due each month.

Would this be considered revolving and count against me?

Thank you

Re: Revolving vs installment

Anonymous — Mon, 08 Oct 2007 16:44:56 GMT

depends on how they report it. if it reports as revolving and it over 10 and between 30% utilization you are taking a bit of a score hit, if it's 50-100% you are taking a major (50-100 points, so i've been told) score hit. if it's reporting as an installment account, the it's not hitting the scores nearly as hard.

Re: Revolving vs installment

Anonymous — Mon, 08 Oct 2007 17:23:06 GMT

Very very good question! I've seen HELOC report as revolving but the balance was treated as installment. Now HELOC and Personal LOC can be very different credit titles.

To answer your question, I believe(not sure) HELOC bal is installment. No idea about personal LOC.

Does anyone know how a personal LOC is treated?
Does anyone know if a personal LOC is Consumer Finance?

Re: Revolving vs installment

fused — Mon, 08 Oct 2007 18:15:09 GMT

In most cases HELOC and other lines of credit are reported as revolving, and in this situation they will factor in with all of your other revolving accounts such as CC's. Home equity loans are installments and if reporting this way, will not factor in revolving util% calculations.

Re: Revolving vs installment

fused — Mon, 08 Oct 2007 18:16:33 GMT

ilovepizza wrote:
Very very good question! I've seen HELOC report as revolving but the balance was treated as installment. Now HELOC and Personal LOC can be very different credit titles.

To answer your question, I believe(not sure) HELOC bal is installment. No idea about personal LOC.

Does anyone know how a personal LOC is treated?
Does anyone know if a personal LOC is Consumer Finance?

Personal LOC are usually revolving just like HELOC. LOC = Consumer Finance Loan, I say NO!

Re: Revolving vs installment

Anonymous — Mon, 08 Oct 2007 18:28:56 GMT

Thank you I've seen LOC advertised from Citibank as 60 installments. They determine the payment to be 60 months from each initial draw. Wonder how this works. Maybe I should apply?

Re: Revolving vs installment

fused — Mon, 08 Oct 2007 19:10:55 GMT

Pizza, are you still apping? You need a referral to the sleigh center!

Re: Revolving vs installment

Anonymous — Mon, 08 Oct 2007 23:16:53 GMT

I only stopped apping for credit cards and installments. lol Always looking for something new and different.

Re: Revolving vs installment

hdporter — Fri, 19 Oct 2007 07:41:17 GMT

My sense is that scoring of LOC's can be a gray area.

With respect to HELOC's, my recollection from a FICO article of a couple of years ago is that the outstanding balance determines how the line is scored. For a low to moderate balance (say $2K - $20K) the loan will be treated as revolving debt. For a high balance (say $50K+) the loan will be treated as installment. It was written that the dividing line was unwritten -- I'd speculate it's either due to something FICO didn't want to put a fine line on, or perhaps a distinction that varies depending upon other credit profile factors.

In general, other unsecured lines of credit will be reported as revolving debt. But I've seen with other accounts (notably, "no preset limit" credit cards) that specifics of how the CRA reports the account can impact whether the account is considered when total revolving utilization is evaluated.

What I'll note is that my wife's GE LOC and my Citi Flex LOC are classified on True Credit reports in the section with our HELOC, suggesting the possibility they might be scored along a roughly similar logic to the HELOC (although different balance thresholds might apply).

Re: Revolving vs installment

haulingthescoreup — Fri, 19 Oct 2007 13:00:12 GMT

becker152 wrote:

Are line of credits considered revolving debt? i have a line of credit back by my good credit score, it is not a term loan, but just an open line where 2% is due each month.

Would this be considered revolving and count against me?

I have a $50K HELOC with $3000 showing as being used ($2000 now, but not yet posted.) When I look on screen 4 of the myFICO reports ("credit at a glance" ), it has the $3000 included as a mortgage on TU and EQ, but as revolving on EX. EQ posted the entire amount as highest balance, even though I've never pulled the whole thing.

EQ does not factor it into my util at all (shows as 2%.)
TU seems to factor it into my util (showing as (3%.)
EX doens't say nice things on myFICO, so no info there.

Isn't that fun? Here's how it shows on all three (I've bolded the differences among them):

EQ: Date opened [?] Sep, 2007

Date of last activity [?] Sep, 2007

Largest past balance [?] $50,000

Credit Type [?] Revolving

Account holder [?] Individual

Scheduled payment amount [?] $0

Descriptions [?]

Home equity
Line of credit

EX:

Date opened [?] Sep, 2007

Date of last activity [?] Sep, 2007

Account number [?] XXXXXXXX

Account type [?] Credit Line Secured, Revolving

Credit limit [?] $50,000

Largest past balance [?] $3,056

Credit Type [?] Revolving

Account holder [?] Individual

TU (sorry, it wants to double-space):

Date opened [?] Sep, 2007

Account number [?] 8524

Account type [?] Home Equity Loan

Credit limit [?] $50,000

Largest past balance [?] $3,056

Credit Type [?] Overdraft/Reserve Checking Account

Account holder [?] Individual Account

Feel free to join me in bafflement. They seem to title it however they want, and they don't treat it the way they title it.

Re: Revolving vs installment

Anonymous — Fri, 19 Oct 2007 15:06:41 GMT

My CU told me they will report my HELOC in mortgages-
They stated even though this is a revolving line- it is secured by real property- an such should be included in Mortgages.

This is fine with me as I want to keep my UTL down-

Re: Revolving vs installment

hdporter — Sun, 21 Oct 2007 13:59:45 GMT

Let me throw a fly into the ointment with an anecdote from this week:

We purchased a myFICO TU score update for my wife. Score came in as 729. Confidence buoyed, we decided to apply for an increase in our HELOC. While we were at it, we asked if we might qualify for a cut in our rate (when we obtained the line 3 years ago, her score was around 670).

The processor ran her credit (we ran the HELOC on her credit alone; I want to keep it off my report). When he came back I asked about the rate decrease; he was silent when I suggested her credit had seen a good boost. He said he would be back to us with a decision.

The next day, Providian FICO's updated. Also based on TU, her score had a precipitous drop of 20 points. I was expecting a significant increase to about 700 (it runs about 20 pts below myFICO). Instead, it came in at 639! I wondered if I had come off as a complete fool on the phone.

When the processor called back, the line increase was approved, but if we changed the line terms the rate would be increased .25%. He said it reflected only her present quality; not the increase in line amount. He said their scoring came in at 660 and said it was a FICO model score based on her TU report.

When I look things over, the only explanation I can see is a disparate treatment of the current HELOC line, which has $24K outstanding on a $50K line. There's nothing else that would support an explanation of such a schizophrenic scoring of a single credit report between various FICO scoring models.

I offer up this as a cautionary tale that no matter what you may see in one FICO analysis, it's no guarantee of how your HELOC will be evaluated under another FICO model's scoring.

FWIW, a little internet scavenging surfaced an article that suggested that HELOC's tended to be scored as revolving lines when balances were under an amount ranging from 30K-50K, and as mortgages in excess of that. FICO is close lipped on specifics.

It can be inferred that FICO wants to attempt to distinguish between those who've merely shifted revolving debt to HELOC's from those have used HELOC's to finance home improvements (since the mere fact that one can tap a HELOC to shuffle revolving debt isn't a factor that significantly reduces default risk).

Re: Revolving vs installment

haulingthescoreup — Sun, 21 Oct 2007 14:24:54 GMT

@hdporter wrote:
FWIW, a little internet scavenging surfaced an article that suggested that HELOC's tended to be scored as revolving lines when balances were under an amount ranging from 30K-50K, and as mortgages in excess of that. FICO is close lipped on specifics.

It can be inferred that FICO wants to attempt to distinguish between those who've merely shifted revolving debt to HELOC's from those have used HELOC's to finance home improvements (since the mere fact that one can tap a HELOC to shuffle revolving debt isn't a factor that significantly reduces default risk).

Thank you--that's an excellent and very enlightening post!

So if the excerpt that I quoted is correct, I should have been greedy and gone for a $55 - $60K HELOC, instead of the $50K, since I really am using it for home improvement! sheesh

I'm still untangling my own line of credit, but it appears that EQ is treating it as mortgage/ installment, EX is treating it as revolving, and TU is treating it both ways, according to the phase of the moon, I guess.

Re: Revolving vs installment

hdporter — Mon, 22 Oct 2007 13:18:06 GMT

@haulingthescoreup wrote:
hdporter wrote: FWIW, a little internet scavenging surfaced an article that suggested that HELOC's tended to be scored as revolving lines when balances were under an amount ranging from 30K-50K, and as mortgages in excess of that. FICO is close lipped on specifics. It can be inferred that FICO wants to attempt to distinguish between those who've merely shifted revolving debt to HELOC's from those have used HELOC's to finance home improvements (since the mere fact that one can tap a HELOC to shuffle revolving debt isn't a factor that significantly reduces default risk).
Thank you--that's an excellent and very enlightening post! So if the excerpt that I quoted is correct, I should have been greedy and gone for a $55 - $60K HELOC, instead of the $50K, since I really am using it for home improvement! sheesh I'm still untangling my own line of credit, but it appears that EQ is treating it as mortgage/ installment, EX is treating it as revolving, and TU is treating it both ways, according to the phase of the moon, I guess.

hauling, bear in mind FICO characterizes the HELOC debt based on the outstanding balance; not the line amount. So, $5K outstanding will likely be scored as revolving no matter how large the line. And, of course, it's uncertain whether $50K is actually a clear demarcation between revolving and installment treatment ... there could be a floating division point that depends upon one or more variables. I've seen no solid guidance.

Re: Revolving vs installment

haulingthescoreup — Mon, 22 Oct 2007 21:40:28 GMT

@hdporter wrote:
hauling, bear in mind FICO characterizes the HELOC debt based on the outstanding balance; not the line amount. So, $5K outstanding will likely be scored as revolving no matter how large the line. And, of course, it's uncertain whether $50K is actually a clear demarcation between revolving and installment treatment ... there could be a floating division point that depends upon one or more variables. I've seen no solid guidance.

Does that mean that if I've barely tapped it, it will be regarded as revolving, whereas once we have packing crates on the porch and dumpsters in the yard and the whole line used, it might be treated as installment? I can see why they *might* do that, but it's a little scary to rely on.

I think I need to drop by the feed store and pick up a 50-pound bag of guinea pig chow. It looks like I'll be experimenting on myself in 5 or 6 months...

Re: Revolving vs installment

hdporter — Wed, 24 Oct 2007 00:46:11 GMT

@haulingthescoreup wrote:
Does that mean that if I've barely tapped it, it will be regarded as revolving, whereas once we have packing crates on the porch and dumpsters in the yard and the whole line used, it might be treated as installment? I can see why they *might* do that, but it's a little scary to rely on.

In essence, that's right. But as I said, no one is making any firm statement as to the balance break point at which a HELOC shifts from being scored as revolving debt to being installment.

Of course, so long as your utilization is very low, it's not much of an issue. But in our case, it looks like whether our HELOC is scored as revolving or installment (and it looks like it sits on the border) makes a 70-90 point scoring difference.

Re: Revolving vs installment

fused — Wed, 24 Oct 2007 01:55:22 GMT

@hdporter wrote:

@haulingthescoreup wrote:
Does that mean that if I've barely tapped it, it will be regarded as revolving, whereas once we have packing crates on the porch and dumpsters in the yard and the whole line used, it might be treated as installment? I can see why they *might* do that, but it's a little scary to rely on.

In essence, that's right. But as I said, no one is making any firm statement as to the balance break point at which a HELOC shifts from being scored as revolving debt to being installment.

Of course, so long as your utilization is very low, it's not much of an issue. But in our case, it looks like whether our HELOC is scored as revolving or installment (and it looks like it sits on the border) makes a 70-90 point scoring difference.

If it's reported as an installment on your CRs, then no way a 70-90 point drop. If it's reporting as revolving with say util at 90%, then a 70-90 point drop is very realistic.

Re: Revolving vs installment

haulingthescoreup — Wed, 24 Oct 2007 04:00:41 GMT

@fused wrote:
If it's reported as an installment on your CRs, then no way a 70-90 point drop. If it's reporting as revolving with say util at 90%, then a 70-90 point drop is very realistic.

MOAN!!! MOOOOOOANNNNN!!!!!

and those aren't moans of pleasure, either, go clean out your minds

Re: Revolving vs installment

haulingthescoreup — Thu, 25 Oct 2007 00:47:16 GMT

@haulingthescoreup wrote:
@fused wrote:
If it's reported as an installment on your CRs, then no way a 70-90 point drop. If it's reporting as revolving with say util at 90%, then a 70-90 point drop is very realistic.

MOAN!!! MOOOOOOANNNNN!!!!!

and those aren't moans of pleasure, either, go clean out your minds

For what it's worth, I checked out the USAA website today, and they have home equity loans as well as HELOC's. As I get closer to D-day (demolition day), I'll call and find out if the HELOC can be converted, or alternatively, open a home equity loan in addition and move the bulk of the borrowed amount over. This is so ridiculous.

Re: Revolving vs installment

fused — Thu, 25 Oct 2007 20:13:21 GMT

Stop Moooooooaning!!!!!