Using a HELOC; impact on Credit Score ? Bummer

[Jim Goebel]

We use MINT.com, which is nice.

According to MINT, what is largely dragging our credit score down (it's a 758) is credit utilization.

That's a few credit cards here and there but predominantly our HELOC is 60% utilized and bringing up our total credit utilization up over 40%.

I'm under the understanding that many people use HELOCs as a great way to pull out equity from their primary residence.

I don't understand why one would be penalized from having a stronger equity position in their primary residence?

Take for instance if we own a $200k house, and are maxed LTV and fully financed with a 1st mortgage, balance of $160k as compared to say having a first mortgage balance of $60k and another $80k balance in a HELOC.

Seems the 2nd scenario is worse for our credit (because of revolving debt) than the 1st - which confuses me.

Anyone have anything to share on this?

[Steve Vaughan]

Originally posted by @Jim Goebel:

@Steve Vaughan

Steve I think you're misunderstanding something.  Thanks for the comment though.

What I'm getting at is that comparing two scenarios....

#1 I'm at a $200k property value with a $160k balance

#2 I'm at a $200k property value with a $60k balance on 1st note and $80k balance on HELOC. Total $140k debt

Scenario #2 is better from an equity position compared to scenario #1.

Why would this hurt our credit, is my point?

Thanks for the other comments by the way...  I am confused though why/how your credit score has not impacted your ability to borrow since 2012?  I mean, our credit score is deemed excellent so maybe there's a point of diminishing returns but I definitely have seen an uptick in our offered terms (%) on financing in the last couple loans.

Oh, I did mis-read your stronger equity position. If you have more equity in #2, it must be the HELOC. The algorithm knows it can be freezed or called or terms changed without defaulting, unlike a mortgage. That's my best guess. Must fall under 'revolving' vs 'installment'.

I was just saying that I haven't borrowed from a bank since 2012 until last year so I was anxious about what my score would be, having closed $85k in available revolving credit.  I was surprised it went up.  Another argument for revolving heloc credit being the culprit of a score hit, even though your equity position is stronger.  

My lender couldn't have cared less about assets for my fannie loan, which I thought was weird. Not even liquid cash of 6 figures. Still made me pay off another mortgage to lend me less than I had liquid. The payment on that apt loan was $1700, so my DTI was high with no w-2. The balance was $64k, equity over $500k but didn't matter... Once I paid off that little loan, my new one went through fine. Assets just didn't matter much above the minimum required.