Caution: Home Equity Lines of Credit
More than ever, you should make sure you know what is on your credit report – and the steps that should be taken if improvement is needed. One thing that many people do not know is that The Home Equity Line of Credit (HELOC) can impact your credit score quite significantly and sometimes unfairly.
Here is What You Need to Know
- HELOC’s are commonly reported by the 3 credit bureaus as revolving accounts.
- However, they do not fall under the typical revolving terms
- HELOC’s are sometimes set up as revolving accounts because HELOC’s are secured by an asset
- Bottom Line…HELOC’s should not be classified as a revolving account on your credit report. If it is, you need to fix it so it does not negatively affect your score.
How to Fix It….
The Fair Credit Reporting Act requires reporting agencies to give true and accurate information. If your HELOC is being reported as a revolving account, you need to send a letter to the three credit reporting bureaus asking them the change the type of account from “Revolving” to “Line of Credit” or “Other”. Why? After the the HELOC is removed from the “Revolving” catagory, the account will not be rated by the scoring system using the “Balance Limit” ratio scenario – which can drop a credit score by as much as 75 points if the HELOC is maxed out.
Make sure you send the letter as Certified Mail, along with a copy of the HELOC agreement.
Team Annett Office