Mortgage vs line of credit

8 Replies

Just thought I'll throw this out, as I don't think everyone knows: 

A mortgage is coded as installment and is seen differently on your credit reports from a credit line, which often is coded like a credit card. 

Subsequently, it can effect your utilization rate.

For example, I had a commercial line of credit, that had not been reported to my credit reports. On my last refi of a property, that particular mortgage company contacted all of my mortgage holders and made sure that everyone reported to the credit bureaus. I didn't think much about it, since I'm current and figured it can only help.

Well, I found out that my score has gone down quiet a bit and saw that it's because they see this credit line at 37% utilization. Fortunately, I have sold a property last week and utilization will soon be seen as 8%. But , man, if this had been recorded when I started with that credit line, it would have been 100% utilization and it would have given me major problems. 

As it is, I'll have to wait until they update my correct balance.

@Michaela G. Hmmm. I have multiple HELOCs which I max out frequently as short term financing to acquire and rehab BRRRRs. But I have not noticed that issue. Do you think maybe it does not apply consistently?
Originally posted by @Kyle M.:
@Michaela G.

Hmmm. I have multiple HELOCs which I max out frequently as short term financing to acquire and rehab BRRRRs. But I have not noticed that issue. Do you think maybe it does not apply consistently?

I don't think it's an 'always' thing, but the risk is there. I don't have a HELOC, but a commercial line of credit. They didn't even report to the credit bureaus. But this last refi, they insisted that all of my tradelines had to be reported. Didn't think much of it, but I have heard in the past that that is always a risk with Helocs or other credit lines. I'm glad this happened only when I'm almost paid off.

My understanding is they only count on your credit lines what the minimum payment is. So maybe the utilization affects your credit score a bit, but as long as the DTI ratios are good, that's the most important thing to me.

Originally posted by @Peter T. :

My understanding is they only count on your credit lines what the minimum payment is. So maybe the utilization affects your credit score a bit, but as long as the DTI ratios are good, that's the most important thing to me.

 My credit cards have 2% utilization and , yet, with several banks, that I have credit cards with and which offer your score (I know it's not the same score as what banks use) , they state that one of the reasons my score is only 757 is because my utilization is too high. 2 of them point it out that this credit line is 38% utilization and thus is hurting my score. I have no negatives or even one late payment on anything else that is holding things back. 

I have often heard about this over the years, but never had a credit line reporting until now, so, just throwing it out. 

Originally posted by @Michaela G. :
Originally posted by @Peter T.:

My understanding is they only count on your credit lines what the minimum payment is. So maybe the utilization affects your credit score a bit, but as long as the DTI ratios are good, that's the most important thing to me.

 My credit cards have 2% utilization and , yet, with several banks, that I have credit cards with and which offer your score (I know it's not the same score as what banks use) , they state that one of the reasons my score is only 757 is because my utilization is too high. 2 of them point it out that this credit line is 38% utilization and thus is hurting my score. I have no negatives or even one late payment on anything else that is holding things back. 

I have often heard about this over the years, but never had a credit line reporting until now, so, just throwing it out. 

 You're worrying for the sake of worrying. Once your credit crosses into 700 territory you're basically going to get the best rate you can. If you're that worried about utilization, ask for a credit raise on all your cards right now. I did that every year and it made my utilization rates look better. 

Originally posted by @Peter T. :

 You're worrying for the sake of worrying. Once your credit crosses into 700 territory you're basically going to get the best rate you can. If you're that worried about utilization, ask for a credit raise on all your cards right now. I did that every year and it made my utilization rates look better. 

Again, as stated earlier, I'll be fine, but I often see questions on whether people should go for a mortgage or a credit line and this lets them know that there's a potential risk with a credit line, depending on how it's coded.