REALTOR® Magazine-Daily News-Home-Equity Credit Lines Can Hurt Scores

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Daily Real Estate News | December 9, 2003 | Home-Equity Credit Lines Can Hurt Scores Many homeowners are opting for home-equity lines of credit to eliminate credit-card debt or fund repair and improvement projects, especially since interest rates for such financing have slipped to about 4.73 percent. However, borrowers who obtain home-equity credit lines might notice a drop in their credit scores, which can be attributed to debt utilization. These credit lines are revolving debt—like credit cards—meaning that the amount of outstanding debt in comparison to the loan limit is weighed more heavily than mortgages, student loans, and other installment loans. With home-equity lines of credit, property owners tap into the money when necessary; repay what they borrowed; and use the credit again; but maxing out a line will put lenders on notice that the customer is borrowing at a greater rate than they can repay.

Source: The Wall Street Journal (12/09/03); Whitehouse, Kaja