HELOC & credit score

[Damien C.]

Hi folks. I have a HELOC in place, and I'll likely tap that line sooner or later. Just wondering if anybody here has noticed a negative fluctuation in his or her credit score as a result of establishing a HELOC and/or as a result of tapping it. (I'm assuming all are paying the minimum payment on time.)

Thanks!

[Brie Schmidt]

@Damien C.

 Many factors go into a credit score.  If your credit utilization goes up your score goes down, but if you have on time payments your score goes up.

[John Newman]

Hi @Damien Christian,

If you have a HELOC but haven't used it yet, that's probably not what is causing your credit score to fluctuate.

You should check out Credit Karma.  It has lots of useful tools.  You can even simulate your actual credit score.  According to their site, these are the factors that affect your score listed from greatest impact to least impact:

Credit Utilization

Payment History

Derogatory Marks

Age of Credit History

Number of Accounts

Number of Inquiries

Most people are concerned about the number of "hard inquiries" they have, but that factor has the least impact on your score.  One of the easiest ways to improve your score is to contact your credit card company and request a credit line increase.  I can do some of mine online instantly right from their website.  Then don't use that extra amount.  This will decrease your utilization ratio without decreasing your average account age.  Contrary to popular belief, creditors actually like to see you to have more credit accounts than fewer.  

Also, utilization ratio recalculates every month or two, unlike number of inquiries and average account age that have history.  So the above method will also positively affect your score the soonest.

I am not a personal finance expert, but I do know quite a lot about credit.  I hope this helps you and others.

John Newman

[Damien C.]

@Brie Schmidt

@John Newman

Your input was helpful--thank you both.

My line is in place; I have not tapped it; and, as a habit, I make payments and pay bills on time. My score is okay now. 

Last year, however, I checked my credit and was hoping to see a 740+; I did not. Apparently, the fact that I had a 3k balance (still making min. payments though) floating on a 0% credit card, which had a 5k limit on it, was causing my score to dip slightly. So I just paid it off. All is well on that front now.

But since so many investors use HELOCs and also rely on good credit, it never occurred to me that tapping the line might cause a similar problem to the one I encounter with carrying a balance on the 0% credit card. There are, of course, differences between the above cc example and my HELOC: one is that I don't intend to use 60% of that line at any one time (though I'm not sure if that matters, it sounds like it might based on the comment regarding utilization ratio).

I'll check Credit Karma per the suggestion.

dc

[Damien C.]

@Brie Schmidt

 @John Newman

The above @mentions did not register the first time ;-)