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Does utilization ratio on HELOC matter?

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    Does utilization ratio on HELOC matter?

    Does the amount you draw from your HELOC matter as far as utilization ratio in the same way that a credit card does? Or is it treated more like a mortgage?

    We just opened a HELOC and I'm not sure how much it's okay to draw on it without having an overly negative effect on our credit scores.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
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    #2
    Home-equity lines of credit (HELOC) is considered revolving credit like credit cards and signature lines. It shows on your credit report as a revolving credit item and impacts your credit score as such.

    Keeping mind that installment loans like mortgages still factor into your credit utilization, revolving credit will carry more weight. Your credit utilization on revolving credit is calculated holistically and not on an account-by-account basis.

    For example, if you have $50,000 available on your HELOC and $10,000 available in credit cards, but you draw $15,000 from your HELOC and have no balances on your credit cards, your credit utilization ratio is 25% ($15,000/$60,000). It is not 30% ($15,000/$50,000).

    Experts say a credit utilization of 10% to 20% is good, just do not exceed 30%. Of course, you probably already know this
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      #3
      Originally posted by dczech09 View Post
      For example, if you have $50,000 available on your HELOC and $10,000 available in credit cards, but you draw $15,000 from your HELOC and have no balances on your credit cards, your credit utilization ratio is 25% ($15,000/$60,000). It is not 30% ($15,000/$50,000).

      Experts say a credit utilization of 10% to 20% is good, just do not exceed 30%. Of course, you probably already know this
      Great. Thanks for the info.

      We have almost 100K in credit on our credit cards and carry no balances. We took a 35K HELOC and I immediately wrote a 15K check. So our overall utilization is about 11-12%. I think we're safe. Plus when we started the HELOC process, we both had perfect 850 FICO scores so even if it drops a bit, no biggie.
      Steve

      * Despite the high cost of living, it remains very popular.
      * Why should I pay for my daughter's education when she already knows everything?
      * There are no shortcuts to anywhere worth going.

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        #4
        Timely thread for me as I just closed on my HELOC. Was wondering if it went against my mortgage or revolving. Now I know. Thanks TS!

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          #5
          This really shocks me you took out a heloc. And pay interest on it.

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            #6
            Originally posted by rockrv22 View Post
            This really shocks me you took out a heloc. And pay interest on it.
            That question ties into the Why I'm not a Ramseyite thread, since debt is a tool, not an intrinsic evil.

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              #7
              Originally posted by rockrv22 View Post
              This really shocks me you took out a heloc. And pay interest on it.
              Why are you shocked? I'm not opposed to debt used responsibly and intelligently.

              We took out the HELOC because we knew there were a couple of big expenses coming, one of which was unexpected (nearly $15,000). Yes, we have savings and investments that we could have tapped for that but I'd rather not touch investments that are doing well when I can get a short term loan for under 4% interest.

              As it turned out, by the time the HELOC actually settled, we had managed to save enough out of current income to pay the other expense out of pocket.

              Part of the problem is that due to my job transition, my income has been a little unpredictable. I wanted to be sure we didn't come up short on available cash. I don't anticipate carrying a balance for more than about a year so we'll only pay a few hundred dollars in interest tops. It's a small price to pay for the security and convenience.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

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                #8
                Originally posted by disneysteve View Post
                Part of the problem is that due to my job transition, my income has been a little unpredictable. I wanted to be sure we didn't come up short on available cash.
                That's an interesting comment, since "dip into the e-fund" is typically given as the solution to this problem.

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                  #9
                  Originally posted by Nutria View Post
                  That's an interesting comment, since "dip into the e-fund" is typically given as the solution to this problem.
                  LOL. Yeah, there's that.

                  At the time we applied for the HELOC, we were anticipating about 50K in expenses between August and December. I didn't want to worry about having to drain the savings and couldn't be entirely sure how much of that we'd be able to cover from current income. I figured opening the HELOC was easy enough and would give us access to the money if we needed it.

                  By the time we actually got the loan, we had been able to pay the first 15K out of pocket. I had shopped around and gotten a 20K expense reduced to 15K. We did use the HELOC to pay that (which wasn't 100% necessary but it was simpler that way). So that just leaves the last 15K due in December. We've already got about 9K of that set aside so we probably won't need the HELOC for that either.

                  The only other thing I may use the HELOC for is to pay off what's left on a student loan at a higher interest rate which will save us a bit there.

                  We also got a nice surprise in the mail today. The HELOC lender sent us a thank you letter with a $100 Home Depot gift card enclosed.
                  Steve

                  * Despite the high cost of living, it remains very popular.
                  * Why should I pay for my daughter's education when she already knows everything?
                  * There are no shortcuts to anywhere worth going.

                  Comment


                    #10
                    I'm closing on my HELOC currently. Maybe will be available in 2 weeks or so.

                    I like the idea of having a HELOC around, it will allow me to be more aggressive with my debt pay-off's while having more flexibility than a credit card (and much lower rate 4% vs ~19%).

                    As long as the prime rate doesn't randomly go up a few % points, I plan to utilize it when necessary as an emergency fund. *w/ same situation as DS, I have taxable accounts invested worth more than enough to pay to most of my un-foreseeable costs. But I don't want to disturb them, while they're busy working for me and earning money.

                    I'm using mine to pay off an investment property. HELOC rate will actually be lower than my current mortgage rate (as investment property mortgage). So it makes sense. But I will look forward to having that HELOC as an extra layer of security if something truly large and un-expected happens upon my family.

                    F.Y.I. - I shopped around until I found a HELOC w/ no cost to set up (drive by appraisal or application), no annual fee, no minimum draw, and no closing fee (after 2 years of having the line open).

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                      #11
                      I wrote a check for $10K on a HELOC years ago on the last house that I owned, and it had no significant impact on my credit score.
                      Brian

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