Clearing away the fog around HELOCs

Home Equity Lines Of Credit are an odd hybrid, offering the convenience of revolving credit and the security of a real estate-backed loan.  Perhaps that’s why lenders are sometimes puzzled about the role of HELOCs in calculating FICO® Scores.

For instance, we often get asked whether HELOCs factor into the FICO® Score’s calculation of revolving credit utilization. We’re also asked what happens to the score if the HELOC’s credit limit is reduced or the trade line is closed by the lender.

HELOC accounts can be reported to credit bureaus in different ways.  To the extent that a HELOC is readily identifiable on the borrower’s credit report, the FICO® Score will be unaffected by either a credit line reduction or account closure.  At the same time, payment history and other aspects of the HELOC account can influence the FICO Score calculation.  On-time payments can gradually increase the borrower’s score while any reported delinquency can naturally lower it.

Who closes an account – the lender or the borrower – doesn’t matter to the FICO® scoring model. The model treats “closed by credit grantor” the same as other closed indicators, such as “closed by consumer.”  This holds true for FICO 8 Scores as well as for previous versions of the FICO scoring model.