Long-term effects of home equity loan on CS

[bobebob]

I am applying for a Home Equity line through DCU for 40K.  I have no immediate plans to utilize the credit line   But I will be using it to fix up the house in the next 10-15 years and thought I might as well get the line and take the HP now since I don't have any inquiries currently affecting my CS.  In the long-run it should help my AAOA (getting it sooner rather than later).

I am wondering what the effect on my CS will be with the 40K line just sitting there until I tap into it. 

It should just show as an open installment loan with $0 balance correct?  Beyond the inquiry, I'm not expecting that much of an impact one way or the other.

Is this correct?

[Anonymous]

Is it a loan or a line of credit?  I assume the latter.

I believe that an actual loan would be installment, and a line of credit revolving.

These are two different things, as described here:

http://en.wikipedia.org/wiki/Home_equity_loan

[RobertEG]

A HLOC, as with any LOC, is technically a revolving line of credit, not an installment loan.

You have a preset. approved CL for which you have discretionary use, and payments then revolve around the current balance.

So a normal HLOC will count in revolving util, not installment.

However, since a HLOC is kinda a hybird, being secured by the property, it is viewed a bit differently as to its risk of repayment, as a consumer wll usually become delinquent on normal CC debt before becoming delinquent in payments on the HLOC.

Thus, at around $35K (others who have one will fll in the current scoring details), FICO scores HLOCs as installment, not revolving.

A normal LOC that is scored as revolving can have a substantial inital scoring impact in % util of revolving,  up or down.depending upon whether the CL is immediately used.

I would check your CRs over the next few months and see if the HLOC is being scored as revolving.

[bobebob]

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@RobertEG wrote:

A HLOC, as with any LOC, is technically a revolving line of credit, not an installment loan.

You have a preset. approved CL for which you have discretionary use, and payments then revolve around the current balance.

So a normal HLOC will count in revolving util, not installment.

However, since a HLOC is kinda a hybird, being secured by the property, it is viewed a bit differently as to its risk of repayment, as a consumer wll usually become delinquent on normal CC debt before becoming delinquent in payments on the HLOC.

Thus, at around $35K (others who have one will fll in the current scoring details), FICO scores HLOCs as installment, not revolving.

A normal LOC that is scored as revolving can have a substantial inital scoring impact in % util of revolving,  up or down.depending upon whether the CL is immediately used.

I would check your CRs over the next few months and see if the HLOC is being scored as revolving.

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I don't have any immediate plans to take any $$ out.  I'm just setting things up in advance for when I will have some work done on the house. That way I don't immediately have to juggle around investments to pay for the work if I want it done right away.

I won't plan on making extensive use of the LOC until my first mortage is paid off.  (in about 10 years)  Then I will be able to use the monthly income I was paying to motgage to pay off the HELOC rapidly.

I don't anticipate the initial scoring impact to be large as I PIF every month and what does post at statements is generally under 10% already.

Does the $35K demarcation between revolving and installment refer to the credit line itself or the current balance on the account?

@Anonymous wrote:

Is it a loan or a line of credit?  I assume the latter.

I believe that an actual loan would be installment, and a line of credit revolving.

These are two different things, as described here:

http://en.wikipedia.org/wiki/Home_equity_loan

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 It is a line of credit.  Although it does have a feature where you can take up to 2 "distributions" per year(and total) where it will be at a fixed rate and duration.

[coterotie]

My HELOC reports as the following:

EX:  Home Equity Line of Credit

EQ: Revolving or option,  In the comments section it says: Home Equity Line of Credit

TU: Overdraft/Reserve Checking Account.

It is $50,000 with a zero balance for the last 7 years.  It has an account status of open.  Of course the interesting thing is the house tied to the HELOC was sold in 2008.  They have kept the account open and reporting so I just let it.  Keep wondering what would happen if I asked them to send me some checks and a credit card.  I have always wanted a 50K unsecured LOC  at prime