WLNS News reports:

“For those carrying a balance, fortunately, most credit reports differentiate credit cards from HELOC draws. A HELOC’s unavailability should not have a significant effect on a credit score. To compensate for the lack of a HELOC as an emergency resource, do whatever you can to build an emergency fund with savings. Start with only $50 a week if need be, and add more when you can.”

In some cases, it is even possible to have a HELOC loan reinstated by petitioning the lender.

See Also:

How Does a HELOC Affect My Credit Score?

How to Un-Freeze a HELOC

Credit.com explains:

“The majority of time a HELOC is reported to the credit bureaus it is also accompanied by descriptive text, called a narrative code, which explains the nature of the account. For example, it is common to see the text “Home Equity Line” or “Secured by Home Equity” on a credit report along with a HELOC account. This text is picked up by smart credit scoring models and causes it to exclude the HELOC when determining credit card debt-related measurements of your credit reports.”

In general, a HELOC has no affect or a positive affect on credit scores.

For more information see:

Will a HELOC Affect My Credit Score?

Will Paying Off My Credit Cards with a HELOC Improve My Credit Score?

First: you can take advantage of recent prime rate reductions for an interest rate significantly lower than those offered by most credit cards. Apply your savings to your bill and you’ll be able to save money while paying off cards faster.

Second: you may be able to improve your FICO credit score when you transfer the debt to your home equity line. How your score is affected depends on whether your HELOC is listed as a mortgage or installment loan.

This strategy can save you a lot of money. However, it is important to use caution: unlike your credit cards, your home equity line is secured by your property. If you cannot pay back your HELOC, you could lose your home.

Learn More: Will Paying Off Credit Cards With a HELOC Improve My Credit Score?

The Arizona Republic reports:

“It also might be smart to check your credit report, evaluate your credit score and make fixes if necessary. Sometimes a drop in credit quality triggers a freeze, not just a declining home value.

Unfortunately, a HELOC freeze itself can lower your credit score because it will show you as having used a larger percentage of your remaining borrowing capacity.”

Most home equity lines of credit are frozen based on declining home values. But, this is certainly something to watch out for.

Remember: you are legally permitted a free copy of your credit report from each national reporting company (Equifax, Experian, and TransUnion) once every 12 months. You can receive these reports by visiting AnnualCreditReport.com or checking out the instructions on the FTC website.

See Also:

Will Taking Out a HELOC Affect My Credit Score?

How the HELOC Freeze Can Damage Your Credit Score

Here’s how:

If you have a lower limit (under $20,000 usually, but no one knows the exact figure), your HELOC is probably reported to the credit bureaus as a “revolving line of credit.” In this case, the bureaus treat your HELOC as though it were a credit card. If a lender reduces your credit limit, your total available credit will go down and your utilization will go up. f your utilization goes up too much, your score will suffer.

Consider this example: A borrower has a HELOC with a limit of $20,000 and other revolving credit (such as credit cards) with a limit of $30,000. If has $20,000 of debt, his utilization is at 40%. However, if he loses his HELOC line, his utilization skyrockets to over 66%. The high utilization may cause his credit score to lose points.

What to Do if Your Credit Score Suffers from the HELOC Freeze

If you notice a credit score drop after having your HELOC line reduced, don’t panic. Remember, the drop is due to ratios that can be improved. Paying back your debt will reduce your utilization and raise your score.

Another solution is to apply for additional credit, either through credit cards or by refinancing your HELOC with a different lender. While this option may help in the long run, it has risks. Your credit score will temporarily drop when you apply for and open a new line. Additionally, it can be tempting to use high-interest credit cards in place of a lower-interest HELOC.

If you don’t plan on using your credit score to make a large purchase (i.e. house, car, etc.) in the next six months, you may want to just hold out. Your regular monthly payments will chip away at your utilization and your score should make a steady recovery.

See Also:

Will a HELOC Affect My Credit Score

Will Paying of Credit Cards with a HELOC Improve My Credit Score?

Applying and opening a HELOC will give your credit score a ding. However, you may be able to increase your score significantly by transferring your credit card debt to your home equity line of credit. How much your score will improve depends on the limit of your credit line. Lower limit HELOCs are generally recorded as revolving lines of credit when determining a borrower’s FICO score. Higher limit HELOCs are generally recorded as mortgages or installment loans.

Credit Scores for Lower Limit HELOCs

Your FICO credit score will generally improve if you use a lower percentage of your total available credit. If you transfer all of your credit card debt to a lower limit HELOC, your debt may still be counted against you in terms of utilization. However, upon opening the HELOC your total available credit will go up – followed by your credit score.

Consider this example: Prior to opening a HELOC, a consumer has $20,000 of credit card debt and $30,000 of available credit. His credit score is docked because he is using 66% of his available credit. He opens a HELOC with a credit limit of $20,000. Now, his utilization is at 40%. As his utilization drops, his credit score improves. Read more…

Low Credit Limit HELOCs

If your lender gives you a low credit limit, FICO will view your HELOC as a revolving credit line similar to a credit card. In this case, utilization matters. If you have a credit card with a $5,000 limit and a HELOC with a $15,000 limit, expect your score to decrease when maxing out the HELOC line. You may notice a decrease in your credit score when using over 20% of your total available credit. You may experience a significant decrease should you use over 50%.

Fair Isaac, the creator of the FICO score, does not say what is considered a low credit limit. However, many mortgage brokers speculate that the majority HELOCs under $25,000 fall into this category.

High Limit HELOCs

If your lender gives you a high credit limit, FICO will view your HELOC as an installment loan. Your credit score may dip at the opening of the line, but should not be affected by your utilization. Your score may increase as you make regular payments. However, using 10% of the line will be the same as using 100% when it comes to utilization. Read more…