Make HELOCs work for you
Today we’re going to discuss how a HELOC (Home Equity Line of Credit) can negatively impact your credit. Odds are some of you out there have tapped into the equity in your home to finance your business endeavors. Quick and easy right? Yes, but it may have devastating effects on your personal credit. You’ve done everything you’re supposed to, paid on time, and have no clue why your score went south. Here’s why:
30% of your personal credit score is made up of how much of your credit has been utilized. Of particular importance to a lender is the percentage of your revolving you have used. When that number exceeds 30% your scores can suffer. When that number exceeds 50% your scores can plummet. Sometimes by as much as 50 points for a single occurrence.
Over 60% of the banks that offer HELOC’S report them on your credit bureau report as “revolving” credit. That’s right. HELOC balances are reported just like credit card balances. If you take out a Home Equity Line of Credit and max it out, be prepared for the consequences! If this is your only business financing option what do you do? There’s a couple things. Obviously the easiest is to keep your balance below 30% of available credit. You might also want to ask your lender as you interview them, how they report to the bureaus. As revolving or as “real estate” related. Don’t be afraid to visit several lenders til you find the product you want. The third option would be to take out an actual “second” mortgage. Seconds are always reported as real estate related.