What Credit Score Is Needed for Home Equity Line of Credit?

April 15th, 2012 | Author:

A home equity line of credit or HELOC is a form of revolving credit in which the collateral is your home. It is similar to a credit card that homeowners can draw money from whenever they need it, but enjoying much favorable interest rates. A HELOC can affect your credit score either positively or negatively.

Consumers value their home very much, that is why HELOC is typically used for essential items only like medical bills, home improvements and education, and not for regular daily expenses. There are certain qualifications that applicants should satisfy in order to qualify for a HELOC, and credit score is one of them.

In fact, credit rating bears a lot of weight in the underwriting process of a HELOC application. Credit reports must show that the homeowners have a good to excellent credit score, and have made payments to creditors on time, suggesting a pattern of financial stability overall. Every lender has its own minimum credit score requirement, although generally speaking the chances of getting approved is higher with a high credit score.

Your credit score will determine your risk of not being able to pay back the money you have borrowed through the HELOC loan facility. You may not even qualify for a loan if you have an extremely low credit score like below 500. Meanwhile, a credit score of above 700 – which is considered an excellent score – will likely qualify you for the best rates and terms. Only applicants with FICO scores of 620 or higher can qualify for the prime interest rates.

Any borrower that opens a HELOC is essentially accessing his home’s equity. For starters, equity is the difference between the determined value of the property and what is owed against it.  The credit limit is calculated by subtracting the balance in your first mortgage by a certain percentage of the home’s appraised value, which is around 75 to 80 percent.

To illustrate, if the appraised of a home is $400,000, it will be multiplied against 80 percent (or in some cases 75 percent), which will fetch $320,000. It will then be subtracted by the balance in the mortgage loan, say $250,000. In sum, the equity of the home is $25,000 and through the HELOC loan facility, the homeowner can borrow up to that amount. In most cases, the HELOC credit line is a lot higher compared to a regular credit card.

Newest Answers

Get the Truth and Avoid These 5 Credit Score Myths

January 30th, 2015 | Author:
h

redit scores are a lot like an unsolved mystery. Everyone has an opinion about how they work, but it seems that nobody knows for sure. Talk to multiple people and you will get conflicting stories. Trust in the wrong information and you can do more harm than good to your credit score. Here are five […]

Continue Reading »

3 Tips for Getting Approved for a Credit Card

January 29th, 2015 | Author:
h

t is often frustrating to get turned down for a credit card, especially if you had done research and chosen one that you thought would be an easy approval. Sometimes it is a low credit score that is the reason, but other factors may also cause rejection even with a good score. Here are three […]

Continue Reading »

Why Getting Married Affects Your Credit

January 28th, 2015 | Author:
h

f you have plans to get married in 2015, congratulations. It is a big step in your life and one that should be filled with excitement and happiness. If you have heard that getting married impacts your credit score, you may wonder what will happen when you say “I do.” Everything and Nothing Changes The […]

Continue Reading »

How to Stop Overspending and Improve Your Bad Credit

January 27th, 2015 | Author:
h

ven if you make your payments on time every month, you cannot have a perfect credit score if you max out your credit cards. In fact, your credit may be only average even if you do everything else right. It is because how much you use your available credit has a big impact on your […]

Continue Reading »

Break These 4 Bad Habits to See Your Credit Score Improve in 2015

January 26th, 2015 | Author:
h

any people make resolutions at the beginning of the year only to find that they are broken by the middle of January. It can get discouraging, especially if your resolution was to improve your credit score. Instead of just focusing on what you should do, you also need to think about what you must stop […]

Continue Reading »

5 Top Apps to Improve Your Credit in 2015

January 23rd, 2015 | Author:
h

t’s a new year and you have new goals to get your credit in order. Maybe you want to buy a house or a new car or you just want to stop the collectors from calling you. No matter what your reason is for improving your credit, these apps can help make it easier. 1. […]

Continue Reading »

Why Maxing Out Your Credit Cards is Bad for Your Credit Score

January 22nd, 2015 | Author:
h

ow that the holidays are behind you, the focus may move to paying off your credit cards. They probably took a hit during the busy shopping season and may even be maxed out. If this is the case, you want to make paying them down quickly a top priority. Otherwise, you may find out that […]

Continue Reading »