Maxing my HELOC to earn FDIC interest. How quickly would FICO recover ?

[Anonymous]

I have 0 balance on my 30K HELOC that I was able to obtain from my local credit union at Prime - 0.5 with a floor of 3.00%. Right now of course it is at floor of 3.00% and I predict it will stay there for quite a while

I am opening a FDIC high interest checking that would give me 4.44% up to $50,000 balance. 

I have only about $10,000 cash so, I think to max out my home equity and then deposit into my high interest checking so I can net about $400 in interest per year (difference between 4.44% and 3.00%). And since I itemize and HELOC is tax deductible  any income tax I'd pay on the 3.00% portion of interest I'd earn from FDIC checking, it is offset by 3.00% interest I'd pay to HELOC.

The only downside I foresee is a negative effect on my score when I max my HELOC, which would probably be treated as revolving line. If I were to refinance in a year or so (right now my income is too low), could I just pay off my HELOC, and with zero debt, and several credit cards with high limit (22K, 14K & 10K), my FICO should recover in several months after that. Shouldn't it ?

Message Edited by sc98007 on 04-12-2009 09:24 AM

[Anonymous]

Not all HELOCs are treated as revolving. I believe $30k might be the cut off point.

Look on your report directly from here.........what is your util percentage? Then add up your revolving balances and CL, you can determine if it is being counted or not.

If not treated as revolving, it might still ding you because installment util counts as well, but for much less than revolving.

[Anonymous]

But regardless of damage done to my score, would recovery period be reasonably short - like several months from the moment I pay off entire balance. FICO model definitely tracks the moment you are late, or even the moment you opened a credit card or had a hard inquiry. However does FICO model tracks the last time you were maxed out on a certain card or line of credit and punishes for that for many months after your balance is paid off ?

Or let's say if you max out on a credit card in January 2009 and your score falls from 750 to 700, then if you completely pay off the credit card you were max out in December 2009. Then all factors being equal your score should recover back to 750 by March 2010 at the latest.

A while ago I  maxed out two credit cards, after those credit cards transferred balance at 0 APR for one year right into my checking account (with no balance transfer fees). I probably hammered then my FICO score pretty badly, but I had a feeling that FICO model would recover my score after I paid off those credit cards. And after 0 APR ended, and I've earned $800 in interest from those credit cards ( instead of them earning interest from me) I paid of every cent of what I owed, and I believe my FICO recovered to about the same level had I never maxed out.

Right now my score it is not as good as it is used to because I've opened too many credit cards tempted by all the offers. Like getting $100 or 20,000 miles. And FICO definetely punishes you for that for quite a while. Although the punishment is light enough to maybe merit getting $100 statement credit, and it definetely merits getting 20,000 miles for opening a credit card.

Message Edited by sc98007 on 04-12-2009 09:46 AM

Message Edited by sc98007 on 04-12-2009 09:50 AM

Message Edited by sc98007 on 04-12-2009 09:55 AM

[Anonymous]

Your FICO score is based on a snapshot of your CR at the time the score is requested. It has no memory.

If you pull a report today and your util is 85%.......your score reflects that.

If you pull a report next week and your util is 3%.....your score reflects that. There are no lasting effects from high util once you pay it back down.

FICO always counts lates, new accounts, inquiries, etc because they remain on your CR and it sees them each time it pulls your report and does a snapshot to base a score on.

It can't see that you had high util last month, if you have low util this month.

[Anonymous]

So FICO doesn't take in consideration "Largest past balance" if it is reported ?