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Large Equity Line

We need about an additional 10K to complete our home improvements. My bank indicates that if I request a home equity line of 1

I have a 25K home equity line and owe 22k. We need about an additional 10K to complete our home improvements. My bank indicates that if I request a home equity line of 150K the interest rate will be lower and I do not need to use more than I need. Is this a good thing to do, will it hurt my credit rating to have such a large equity line. I do not plan to use more than 10k.

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Bill's Answer
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A Home Equity Line of Credit (HELOC) is a great way for many homeowners to tap into the equity in their homes, allowing them to pay off high interest credit card debt, to finance large purchases, or, as in your case, pay for home improvements which should further increase the value of your home.

Obtaining a HELOC larger than the amount that you think you actually need for your planned repairs should not have a negative impact on your credit score, as long as you do not spend much more than you initially planned. Since home equity lines are considered revolving debt by the credit bureaus when calculating your credit score, the bureaus look at the ratio between your outstanding debt and your available credit, not just how much available credit you have available. Generally speaking, a debt to available credit ratio of 25% or less is ideal; a ratio higher than that may exert a negative influence on your credit score, with the negative influence increasing the higher the ratio becomes. If you only spend $10,000 of your $125,000 available credit line, this credit line should improve your overall debt to available credit ratio, thereby improving your credit score.

But, make sure that you are not paying large commitment fees for the full amount, and are only paying interest on the portion that you are using. Also, be careful with your home equity line -- overspending is easy when you have a large line of credit freely available to you. Due to the temptation to overspend, you need to consider your spending habits before taking out such a large credit line. If you can discipline yourself to spend only the $10,000 needed for the home improvements, then taking out a large equity line should not cause you any problems. However, if you have a tendency to overspend, having so much credit could cause you problems. As long as you do not use too much of the credit available on the HELOC, it should not have a negative effect on your credit score.

To read more about home equity lines of credit, I encourage you to visit the website at /home-equity-line/. If you enter your contact information in the Savings Center at the top of the page, we can have several pre-screened lenders contact you to discuss the options available to you. In addition, the offers a wealth of information about credit, credit reports, and credit scoring, available at /credit/. I hope that this information helps you Find. Learn. Save.



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