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.
ave you ever lamented over past mistakes that just won’t go away? You made poor decisions in the past or an unfortunate situation happened and you are paying for it years later. Legislation that is being proposed to Congress may change things for people with lower credit scores. In this legislation, changes would be made […]
ore employers are checking credit reports as part of the hiring process. While this is controversial for many people, it is becoming standard procedure in many jobs. The result is that you may not get hired if you have bad credit. What you might not know is that you can also get fired for having […]
ne of the most basic financial lessons to learn is the importance of saving money. You may be taught by parents or grandparents from an early age to save your money. You hear about it in money classes and even in credit counseling. Read numerous articles on saving money and you will find all kinds […]
he first time you look at your credit report, you may be surprised at the information that is listed. If you request reports from two or all three of the major credit reporting agencies, you may notice that the information looks different from one to another. How can the balance on a credit card be […]
ne of the big dreams for many people is to buy their own homes. If you have bad credit, this can be a challenge. You may have to save up money to pay off old debts to improve your credit score and then save more money for a down payment. If you’ve heard about rent […]
hen people start looking to buy a home, they often look at their credit scores. They know it is difficult to buy a home with a score below 640. Anything under 600 and it is all but impossible. With the recent changes in some lending practices, a few lenders have loosened up their lending guidelines […]
One of the big factors for lowering the credit score for many people is medical collections. Even people who are normally responsible for debt and pay their bills on time can get caught up with issues surrounding large medical payments. While they are not the most accurate indicator of how people handle credit, medical collections […]