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I'm getting ready to get a home equity line of credit. I own…

I'm getting ready to get...
I'm getting ready to get a home equity line of credit. I own my home outright and have no other liens. I plan to get about $ 50,000 line of credit, which is about 30% of home value. I plan to use proceeds to pay off all my credit cards, which are about $ 37,000, leaving me a buffer for emergencies or other needs. I currently have a credit score of 730. Will doing this raise my score, since I will now have no credit card balances and my only loans will be the credit line? Is a home equity line which is a low loan to value a much better credit score item than the credit card balances which were high balance to limit ratios?
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Answered in 10 minutes by:
11/19/2017
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Finance
Satisfied Customers: 2,609
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Hello, My name is ***** ***** I will be able to assist you today.

Q: Will doing this raise my score.

A: Paying down unsecured lines of credit such as credit cards with high debt will generally raise your credit overall credit score with everything else being equal. Each of the three credit rating agencies have separate underwriting guidelines to determine your credit score. All the variables used by the agencies to determine your credit score not disclosed to the public. Also, the credit rating agencies don't place the same weight for each credit item which is why you have three separate scores.

___

Q: Is a home equity line which is a low loan to value a much better credit score item than the credit card balances which were high balance to limit ratios?

A: A low loan to value loan secured with a physical asset creates a better credit profile then having debt on multiple lines of unsecured lines of credit with high debt.

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Using a home equity line to pay off high rate and high balance credit cards is a smart financial move, if you are comfortable with the extra debt on your property.

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If you have any follow up questions please let me know!

Thank you

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Customer reply replied 8 months ago
I've long seen the value of doing this, I delayed it because it was psychologically unappealing to me to encumber the house which I inherited free and clear from my parents. But I have to pay off all the debt anyway, and I will save at least $1,500 a year in interest, converting this $37,000 debt at average rate of 8% to home equity rate of 4%, plus getting the interest deduction as well. I'm already used to paying at least $ 800 a month on the cards, I'll get a lot more principal bang for the payment with equity loan.

You are exactly right.

The key to make this an effective decision is to make more than the minimum payment for the home equity line of credit and try not to use your Credit cards.

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Just by transferring the debt you will save a couple hundred each month

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Finance
Satisfied Customers: 2,609
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified
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