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).
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).
@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!
sheeshI'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.
@haulingthescoreup wrote: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!
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).
@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...
@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.
@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
@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.
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.
Stop Moooooooaning!!!!!