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.
he main reason people have low credit scores is because they can’t pay their bills. While it may simply be a lack of credit history for some, most people have a separate issue with late payments and unpaid collections. Having a bad credit score doesn’t mean you are a bad person or even irresponsible. The […]
f you are looking to buy a home and you have been turned down because of a low credit score, don’t give up hope. You can take action that will help you qualify for that mortgage. Some of these tips will help immediately while others may take a while. Pay Down Credit Cards Often just […]
he new FICO Score 9 was just released, and promises good things for the average person. While this updated model has been talked about for some time, it was finally made public in an announcement by FICO and will be available for lenders and creditors. Changes The main changes in this model are in regards […]
f your credit card debt has spiraled out of control and you are finding it difficult to make even the minimum monthly payments, you may be considering a hardship repayment plan. These plans often lower your payments either by reducing the interest rate or allowing you to pay only the interest. This is designed to […]
hen you are blissfully in love, your first thought may not be about credit scores. You start thinking about wedding invitations and where the reception will be. It’s often not until later that you realize how getting married impacted your own credit. For Better When getting married, you probably don’t think about the future past […]
aving a credit card can drastically improve your credit rating over time, especially if you have never had one before. Use it responsibly and pay your bills on time and it can be your best friend. However, there are several mistakes you can make with credit cards that can hurt your credit score. Assuming Everything […]
f you have been seriously delinquent on any of your bills, they may have gone to a collection agency. If this agency reported the account to the credit reporting bureaus, it may show up on your credit report and cause your credit score to drop. Since it has such a big impact on your credit, […]