HELOCs And FICOs

One big issue regarding the lenders arbitrarily freezing of HELOC lines is the impact they can have on an individuals credit score. A line opened with $100,000 could easily be reduced by half or more.. and what happens to people when they are at the cutoff point? Since they are now at the 100% credit utilization level what impact will that have on their credit score? Today we find out from Florida's New 12 with their online article titled Clean up your credit. Lets take a look -

With all the financial upheaval over the past year, including the subprime-mortgage mess and the rescue plan for banks toppled by risky loans, it wouldn't be surprising if you were tempted to think that credit is a four-letter word.

But one important lesson this crisis has driven home is that your credit is the financial equivalent of your good name. A good score is your ticket to a home, a car, a credit card or even an insurance policy, and even a tiny slip-up can come back to haunt you. That's especially true now because the credit crunch has spread to other types of borrowing. For instance, banks have been forced to write off record levels of credit-card debt, so they're setting the bar higher for potential borrowers. A year ago, a score of 720 would have had lenders lining up for your business. Today, a score of 740 or 750 will get you an account but might not qualify you for the lowest interest rates, says Bill Hardekopf, of LowCards.com.

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Other things to watch out for: paid-in-full accounts that still show a balance and someone else's record that appears in your file. If the credit bureau misspells your name or reports your address incorrectly, that won't affect your score. Balancing act. It's important to minimize the ratio of your outstanding debt to your credit limit (what's known as your credit-utilization ratio) for each card you hold. If you're near your limits and a long-standing customer with a good history, you could ask your current card issuers to raise your limits. Or you can focus on paying down your balances so that you're using less of your available credit. A good rule of thumb is to aim to keep your balance below 30% of your limit on each card.

If you're concerned that a recently frozen home-equity line of credit will tip the utilization scales, don't worry. Ethan Dornhelm, of Fair Isaac, the company that compiles the FICO score, says the scoring model excludes HELOCs from such calculations.

So directly from FICO a frozen HELOC will have no impact on your credit score - since its not part of the model. One piece of good news for all of us who have received the shut-off notice...