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Is it wise to be approved for a larger amount than is needed or does that work against me on my credit report?
Posted by iputbandaidsonu

I am applying for a Heloc. I have quite a bit of equity so I can qualify for a larger amount than I actually need at this time. Is it wise to be approved for a larger amount than is needed or does that work against me on my credit report?

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CreditLearningCenter.com says:

Thank you for your inquiry.  Overall, a lower-interest home equity line of credit should be a positive for your credit score, especially if you are using your home equity line of credit to get rid of bad higher interest rate debt, such as credit cards that carry a very high interest or personal loans. 

                                 

It's important to know that your debt to available credit ratio is a factor in your credit score so if you use your line of credit to improve that ratio, you should be ahead of the game.  For instance, if you have credit cards that are maxed out, your debt to available credit ratio will typically be a negative factor on your credit score, but if you reduce your balances on these accounts to zero, or even under 30% of your limit (which is where the scoring formulas like to see them), you should see a positive impact on your credit score.

 

However, It is important to point out that a home equity line of credit is considered revolving credit, so unless you are using your HELOC, in part, to pay off higher interest rate debts, and  improve your debt to available credit ratio, your score can be hurt as you tap in to your line of credit and the line of credit used grows over time.  In this case, as you pay down your line of credit equity line, your score will go up.

 

Credit scores are affected by many other factors including payment history, type of credit used, length of credit history, and more.  Without knowing your personal situation, it is hard to predict how a HELOC will affect your score, but it is important to understand that HELOCs can affect your credit scores positively or negatively, depending on your situation.

 

The CLC Help Center

Thu Dec 21, 2006 04:36:56 PM
 
 



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