Your One Stop Resource for Saving Money.
Informaiton about applying for a HELOC and its effect on credit score - The Bills.com Blog
Bills.com Blog > Mortgage Questions > HELOC and its Effect on Credit Score
Informaiton about applying for a HELOC and its effect on credit score
Thursday, Jan 24, 2008
Question: I am thinking to applying for a HELOC for 100k+. I wonder if my FICO score will be effected? If it is, will it be negative or positive effect on my FICO?
Answer: Thank you for your question. It is difficult to say whether or not your score will be affected without knowing your overall credit profile, including other debts and loans. However, as long as you make timely payments to your lender, a HELOC with a large balance should help your score. The initial inquiry that the lender makes on your credit file won't hurt your score, unless you have more than three or four inquiries in a short period of time (3 months).Since you are inquiring about credit scores, here is some information as to how credit score is calculated. There are five key factors that go into calculating your credit score, with certain items carrying more weight than others. These factors are as follows:
1) Payment history , which counts for approximately 35% of your score, is the most heavily weighted factor used in calculating your credit score. Consistently paying your bills on time has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Collection accounts and bankruptcy filings are also taken into consideration when analyzing your payment history.
2) Total debt and total available credit , which counts for about 30%. This section looks at how much debt you have compared
to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.
3) Length of positive credit history , which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments.
4) Mix of types of credit , which counts for approximately
3) Length of positive credit history , which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments.
4) Mix of types of credit , which counts for approximately
10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.
5) The number of new credit applications you have recently completed , which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.
Also, factors such as age, sex, income, and length of employment, have no direct affect on your credit score, and are not considered when the bureaus calculate your score.
If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by Bills.com at http://www.bills.com/credit/.
I hope this information helps you Find. Learn. Save.
Best,
Bill
www.bills.com
5) The number of new credit applications you have recently completed , which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.
Also, factors such as age, sex, income, and length of employment, have no direct affect on your credit score, and are not considered when the bureaus calculate your score.
If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by Bills.com at http://www.bills.com/credit/.
I hope this information helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
Submit questions/comments about this post:
Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
Information provided by Bills.com is for general informational purposes only and is not be
construed as legal, financial, bankruptcy, tax or other professional advice. Should you
require more detailed information or specific professional advice tailored to your situation you
should consult an attorney, financial planner or tax advisor.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
© 2006 - 2009Bills.com LLC. All Rights Reserved.