HELOC

[HarleyMan2014]

I have over 100k in equity in my home after the refi. Thinking of pulling 50k in the form of a heloc. Maybe pay off my motorcycle, and another small loan, and just have the available credit. If I do this and don’t spend any of it, will it affect credit rating, or is it something I should do? TIA

[SouthJamaica]

---

@HarleyMan2014 wrote:

I have over 100k in equity in my home after the refi. Thinking of pulling 50k in the form of a heloc. Maybe pay off my motorcycle, and another small loan, and just have the available credit. If I do this and don’t spend any of it, will it affect credit rating, or is it something I should do? TIA

---

My advice would be not to borrow against your home. It's too risky. Your home is where you live.

[RobertEG]

It can be effective solely from the APR point of view, as it can result in more $ in-pocket.

However, the question is limited solely to effect on credit scoring.

To that end, HELOCs are revolving lines of credit that are eligible for inclusion under % util of revolving, which is likely a significant scoring factor.

However, HELOCs with usage balances over a certain amount are not included in % util scorings under some FICO models.

While it has been several years simce I saw a statement directly from Fair Isaac, it used to be at around $35K.

Hopefully, other forum participants can provide more detailed and updated info on levels and scoring model versions and how they treat lines of credit. but it is a scoring factor that you should be aware of and consider.

[DaveInAZ]

Well, a HELOC is a lower rate than vehicle loans and much lower than credit cards, my HELOC is 3.25%. But my question is if you just completed a refinance why did you leave $100k in equity? Mortgage rates are at record lows, better to take that equity out in a long term mortgage.

[DaveInAZ]

---

@SouthJamaica wrote:

---

My advice would be not to borrow against your home. It's too risky. Your home is where you live.

---

It's risky to rent, if you can't pay the rent you get evicted. The point being 99% of folks pay for a place to live, either rent or mortgage. Living is a risk, you can die anytime.

[Anonymous]

HELOCs were cutoff at $35,000 on 4/5, between $31,000-34,000 on 2, I believe like revolvers, as RobertEG alluded to. However on Version 8 and forward, they seem to be treated differently without that cutoff. They have a lot of special metrics that measure them in the new versions, so they’re not simply treated as revolvers anymore, but the treatment is much more complex, I believe.

[Anonymous]

Edited:

FYI, EQ8 and EX8 tracks:

(-) Proportion of balances to credit limits on revolving HELOC accounts is too high

(-) Proportion of revolving HELOC balances to total revolving balances is too high

notice it said to total revolving balances, not limits. 

So not only does it look at a HELOCs’ individual utilization, but it also looks at a special utilization of HELOC balance/aggregate Revolver Balance, interestingly enough.

So EQ8 & EX8 definitely look at HELOCs in more depth than TU.

so it wants to know what percentage of your aggregate revolver balances (not limits) are from HELOCS. So, how much of your revolving debt you're carrying on the HELOC, basically.

[K-in-Boston]

---

@Anonymous wrote:

Edited:

FYI, EQ8 and EX8 tracks:

(-) Proportion of balances to credit limits on revolving HELOC accounts is too high

(-) Proportion of revolving HELOC balances to total revolving balances is too high

notice it said to total revolving balances, not limits. 

So not only does it look at a HELOCs’ individual utilization, but it also looks at a special utilization of HELOC balance/aggregate Revolver Balance, interestingly enough.

So EQ8 & EX8 definitely look at HELOCs in more depth than TU.

so it wants to know what percentage of your aggregate revolver balances (not limits) are from HELOCS. So, how much of your revolving debt you're carrying on the HELOC, basically.

---

Has anyone reported actually seeing those reason codes?  I'm wondering if perhaps those reason codes were in a whitepaper and not actually implemented, or if they perhaps only apply to smaller HELOCs?  I had a massive HELOC balance which one would think I would have been penalized for or at least seen as one of the primary reason codes if that were the case (it was after all almost the entirety of my revolving credit balance, and it was very heavily utilized), yet my scores were in the 820s and 830s when it reported (EQ was 833, for example), deviation from higher scores could easily have been explained by aggressive credit-seeking, and scores did not increase as the balance on the HELOC came down to the typical revolving thresholds.

There definitely seems to be a point where HELOCs seem to be excluded (other than age metrics).  I wasn't expecting a disclosure of the actual numbers since those are proprietary, but did pose the question during the myFICO AMA.  The answer I received was:

For older score versions, HELOC accounts may be considered in the score including in several balance and utilization related characteristics. For newer score versions, HELOC accounts may not factor into balance and utilization.

[Anonymous]

I don’t believe it would be high on the list, because first off it’s a secured debt like a mortgage, so I don’t really see them taking many points for that. I think that would be a code rarely if ever that’s seen. You would actually think it would be better to have the majority of the balance on a HELOC due to lower interest-rates typically.

These are included in the official documentation for the version, but I obviously cannot attest as to whether or not it was belatedly changed.

Another thing to keep in mind is there are many reason codes that are never seen such as lack of recent retail account balance. That tells me it’s being tracked, I don’t think you’ll ever see that code because having a balance there is not a positive, but the code tells us that it is being tracked in my humble opinion.

[HarleyMan2014]

---

@DaveInAZ wrote:

Well, a HELOC is a lower rate than vehicle loans and much lower than credit cards, my HELOC is 3.25%. But my question is if you just completed a refinance why did you leave $100k in equity? Mortgage rates are at record lows, better to take that equity out in a long term mortgage.

---

Because of my stupid student loans. My DTI for the refi was razor thin, I just couldn't pass up these lower rates. After the refi, I was able to take 5k out. Gave that to the Mrs to pay off all her cc debt. One thing I had wrong in my mind, having got the offer back from my credit union, even though I have over 100k in equity, I can only take up to 80% of LTV. I wanted 50k, my CU came back with 8k. Said if I sold the home, I get 100% of equity in the home. Rate was sub 5% and if the 8k is maxed the payment would be $68