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

3 Things You Need to Know about Credit

December 2nd, 2016 | Author:
h

[I]f you’re trying to build credit or repair bad credit, you’ve probably seen a lot of information about credit. Some of it can be overwhelming. You don’t know what is essential or what you should do first. Here are the three most important things to know about credit. 1. You Must Have Credit to Build […]

Continue Reading »

Do You Need Good Credit for Traveling?

November 30th, 2016 | Author:
h

[I]f you like to travel, you may wonder if good credit is necessary to enjoy life on the road. While it’s not a requirement for vacationing or taking a road trip, it can make life easier. Here are a few instances of how good credit can make traveling easier. Credit Cards for Reservations You need […]

Continue Reading »

Is a Prepaid Card a Good Idea?

November 28th, 2016 | Author:
h

[A] prepaid card allows you to purchase items just like you would with a credit card. The only difference is you must have money on the card whereas a credit card allows you to pay for purchases on credit. You also have time to pay for the items over several months as long as you […]

Continue Reading »

How to Save Money on Your Cell Phone Bill

November 25th, 2016 | Author:
h

[I]t’s easy to get into trouble with your cell phone bill and not be able to afford the payment. When this happens, your phone gets shut off and the account can go into collections which will show up on your credit report. Here are some ways to save money and prevent this progression. Choose Your […]

Continue Reading »

What Classic TV Shows Tell You about Money

November 23rd, 2016 | Author:
h

[I]f you grew up watching popular TV shows or reruns of old sitcoms, you may never have realized how much they impacted your life. Many of these shows and their characters help to form your opinions about life in general. Here is a look at what some of them taught you about money. Seinfeld – […]

Continue Reading »

Why You Want to Be Like Harry Potter

November 21st, 2016 | Author:
h

[F]or fans of one of the most popular book and movie series of all time, they can follow The Boy Who Lived and apply his ideas about money to their own lives. While money wasn’t a major theme in the story, it did play a key role in Harry’s life and with his friends. Money […]

Continue Reading »

How to Use Credit Cards Responsibly

November 18th, 2016 | Author:
h

[I]f you just got your first credit card approval, you may be excited at what it can do for you. Whether you are working to build or rebuild your credit or just like having credit to make purchases, you need to know how to be responsible with your new credit. It’s much easier to protect […]

Continue Reading »