If your home equity line of credit is reduced, you may have an even bigger problem on your hands. Reduced HELOCs often result in decreased credit scores, which can make it more difficult to take out loans, qualify for credit cards, or even refinance your home.

Holden Lewis reports:

“Your bank sends you a letter, telling you that the limit has been reduced on your home equity line of credit, or HELOC. That news is unwelcome enough. What the letter doesn’t tell you is this: Your credit score just got whacked.

A frozen HELOC doesn’t always spell credit-score doom. Under some circumstances, freezing a HELOC might not change the score much. Under other circumstances, the credit score can tumble enough to derail one’s financial plans.”

The affect on your FICO score depends on how your HELOC is categorized. If it’s listed as revolving debt, your score may take a nosedive. If it’s listed as an installment loan, you’re more likely to escape the fallout.

For a detailed description of how this works see: How the HELOC Freeze Can Damage Your Credit Score.

Tags | Heloc, heloc crisis, heloc freeze, home equity line of credit