HELOC Question(s) - How to avoid AA based on an outstanding and increasing HELOC balance?

[JJF]

There are many threads associated with CLD on CC.

My question is can a lender decrease your HELOC limit?  

With all the computer modeling,credit monitoring software that exists, I wonder what would happen if a bank noticed that direct deposits stopped (ie I lose my job), savings decreased (lived off savings as long as it lasted) and HELOC advances increased (living off HELOC) -  what could they do and how might they react?

Without specific knowledge, my assumption is that a HELOC is much safer than a CC limit.  Some of my credit reports show the account balance by month,  I assume the same might be true for my HELOC.  

For months I have tried to figure out why anyone needs $200k or more in credit limits, if they PIF each month.

If HELOC is treated as revolving debt, then larger total CC limits helps maintain a lower overall utilization.

Worst case looking ahead for a year, what steps can you take today to minimize any potential AA tomorrow?

-   Should your paycheck always be deposited with a bank/credit union that is NOT your creditor in order to obscure the fact of its absence?  Why make it easy for them to see that you no longer get a paycheck from your company?

-   Use all open credit cards, several times per year, PIF each month, so they don't get closed due to inactivity.

-   Open a new national federal credit union account every 6 months, then apply for a credit card thru the credit union hoping to get a $20k credit limit or more? 

-  If change a change in credit patterns if often perceived as risk, then should a HELOC be used at least once per year so that I gets reported, then paid off over 1 to 3 billing cycles?   Will using a HELOC maintaining a balance of $1K to $5K (ramping up and down month to month), in any way help next year if I needed to use $20K to $30K? 

Any other thoughts?

[Anonymous]

In this credit market, HELOC's are coming under fire from the banks.  People who are not using them are getting them cut and people who are running into other financial issues are at risk of them getting cut.  The best way to avoid it is to keep doing what you are doing and keep on top of your debt without making a bunch of "credit moves".  Opening up new acocunts and taking on large credit limit cards will not "help" your case.  Neither will opening up new credit union accounts, etc.  New activity is a bad credit sign in general.  It may help your utilization if you have an issue there, but if you forsee future earnings problems, lowering your utilizations is not an answer, lowering your debt is.  In other words, building a house of cards of debt and open credit lines is no protection from future job loss, etc.  You should not plan your future based on borrowing from a HELOC or credit cards.  If you do feel your job may be in jeopardy, you need to look at how you can cut your expenses and expand your future employment opportunities while getting as much money as you can stashed away.

that said, of course you should use all of your open cards every other month or so then PIF.  I don't think the paycheck thing matters.  they look at payment history, not where deposits are coming from.  Of course if you have abunch of accounts with a bank and they see all of the average deposit balances are getting lower while the average credit balances are getting higher that could be cause for AA.

As far as what will help next year, there is no way to know.  The credit/mortgage/job markets/economy are all in too much flux to give you an answer.  The bottom line is that planning for future job or income loss should never be based around adding debt to get by.  It just digs a deeper hole and tying that debt to your home is doubly dangerous.

[haulingthescoreup]

I don't think they can change the terms of a HELOC, because unlike CC's, you have signed a contract that specifies the terms.

However, I have read many news stories about people who have paid off their HELOC's and then found them to have been immediately closed. So if you do have one, and you're in a position to pay it off, but you want to keep it under the current times, it would be wise to leave a couple hundred bucks on it.

[Anonymous]

I have heard of peole getting HELOCS dropped or CLD.  They are a line of credit and the bank can re-evaulate them.  I have heard some people saying that if people are overly concerned, to go into the bank an dapply for a 2nd mortgage instead of a HELOC and bank the money, but in reality, neither seems like a smart way to go about it.  For everyone who tries this and eventually fights there way back out of the debt after a job loss, there will be someone who just buried themselves further in debt and made it imposiible to recover. 

That said, to each their own. 

[Anonymous]

Mickie is right, I've heard many accounts in this market of people's HELOC's being slashed. Unlike a traditional mortgage, banks absolutely have the right to reduce the unused amount of your HELOC, and they absolutely will particularly if they feel your property has lost value. At least unlike a credit card, it's my understanding that they can't reduce the HELOC under what debt you already have against it.

[Lel]

In general, banks can't change the terms of a HELOC unless the borrowers does something wrong, like miss a payment or overdraw the line.  Once that happens, then the bank (well, at least my bank) can theoretically do anything they see fit - cut the CL, change the margin, demand immediate payment, etc.  I've heard about them cutting CLs, though, without prior warning and without any delinquency on the part of the borrower.

I've been waiting to see if my bank cuts my CL, because since I opened my HELOC last year, my home's value has crumped and I'm in a negative equity situation now.