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?

Applying and opening a home equity line of credit 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. Learn more…

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

USA Today explains:

“…Watts says, “It isn’t always possible for Fair Isaac to distinguish a HELOC (home-equity credit line) from other types of (revolving) credit. It’s one of those vagaries between lenders and credit bureaus that frustrates score developers.”

His advice? If your home-equity line is frozen, pay it off before applying for a mortgage. “As far as your score goes,” Watts says, “the best way to treat any account that’s being reported as having a very high utilization rate is to pay down the account.”

Check your report to see how you home equity line of credit is listed.

See Also: 

How the HELOC Freeze Can Damage Your Credit Score

HELOC Freeze Damaging Credit Scores

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…