Key Takeaways
- A HELOC can either improve or harm your credit, depending on how you manage the account.
- Applying for a HELOC triggers a hard inquiry, which can temporarily lower your score.
- Your payment history and how lenders report the account, either as revolving credit or an installment loan, are the main factors affecting your score.
Opening a HELOC may seem like a financial win, but you might notice an initial drop in your credit score. That initial dip catches many homeowners off guard, but it’s usually temporary and often not the whole story.
The true effect of a HELOC on your credit depends on how your lender reports the account, your balance, and how you manage payments over time. Below, we explain how your credit score is affected at each stage, from application to repayment, and how to use a HELOC without putting your credit at risk.
In this article (Skip to...)
- HELOC credit reporting
- HELOC application impact
- HELOC usage impact
- HELOC closure impact
- HELOC and credit scores
- FAQs
How is a HELOC reported to credit bureaus?
A HELOC, or home equity line of credit, is like a credit card that uses your home as collateral. You have a set credit limit, can borrow as needed, and only pay interest on what you borrow. How a HELOC affects your credit depends on how you manage it and how your lender reports it. Many borrowers overlook how a HELOC is reported, yet this detail can significantly affect your credit score.
Compare HELOC offers with multiple lenders. Start hereHow does a home equity line of credit appear on your credit report?
Lenders report HELOCs to the three major credit bureaus, Experian, Equifax, and TransUnion, in one of two ways:
- Revolving credit: Reported as a revolving account, like a credit card. Your balance-to-limit ratio counts toward your credit utilization.
- Installment loan: Reported as an installment account, similar to a mortgage, where utilization does not factor in the same way.
Here’s where it can get a bit confusing. FICO usually does not count HELOCs in your credit utilization, but VantageScore, which some lenders and credit apps use, may include your HELOC balance in your score.
The key takeaway? Ask your lender how they report HELOCs before you apply. This detail can affect how your credit score changes when you start borrowing.
How applying for a HELOC affects your credit score
The application process alone can affect your credit score. When you apply for a HELOC, the lender pulls your credit report. This is called a hard inquiry, and it typically causes a small, temporary decrease of about 5 to 10 points. The impact doesn’t last long. A hard inquiry affects your FICO score for about 12 months, even though it remains on your credit report for two years.
Check HELOC eligibility and terms. Start hereCredit scoring models recognize rate shopping. Multiple HELOC applications within a 14- to 45-day window, depending on the model, are usually treated as a single inquiry. Compare offers, but submit applications within this window to minimize impact on your score.
How HELOC usage affects your credit score
Once your HELOC is open and you start using it, how you manage the account becomes the main driver of its impact on your credit score. This is where responsible borrowing can actually work in your favor.
- Payment history is the largest factor in your credit score, accounting for about 35% of your FICO score. Each on-time HELOC payment builds a positive record, while even one late payment can significantly harm your score. Setting up autopay or reminders can help protect your credit.
- Credit mix, which accounts for about 10% of your FICO score, reflects your ability to manage different types of credit. Adding a HELOC introduces a secured, real estate-backed account, which may benefit borrowers with a limited credit mix.
What happens if you miss a HELOC payment?
Missing HELOC payments can seriously affect both your credit score and your home. Since your home secures the HELOC, the risk is greater than with credit cards, so these payments should take priority.
- 30+ days late: The late payment gets reported to the bureaus, and your score drops.
- 90+ days late: The damage is more severe, and the lender may begin default proceedings.
- Continued delinquency: Because a HELOC is secured by your home, serious delinquency could lead to foreclosure.
Does a HELOC affect your credit utilization?
Credit utilization, the percentage of available credit you use, is the second most important factor in your FICO score. Whether your HELOC affects this depends on whether your lender reports it as revolving credit or an installment loan.
How credit bureaus classify HELOC balances
| Reporting Type | Utilization Impact | Score Effect |
| Revolving credit | High balance increases utilization | Can lower score if utilization exceeds 30% |
| Installment loan | Balance not factored into utilization | Minimal impact on utilization ratio |
FICO models typically treat HELOCs as installment debt, so your HELOC balance usually won’t affect your utilization ratio unless your lender reports it as revolving credit. VantageScore sometimes includes HELOC balances in utilization, and some lenders may use different models. When using your HELOC, assume it may affect your credit utilization, especially if it’s listed as revolving credit, and keep your balance low to minimize risk.
Can you use a HELOC for debt consolidation?
Yes, you can use a HELOC to consolidate debt. Using a HELOC to pay off high-interest credit card debt can improve your credit score in two ways. First, you reduce your credit card balances, thereby lowering your revolving utilization. Second, you’ll likely save money on interest since HELOC rates are typically much lower than credit card rates.
Does an unused HELOC affect your credit score?
Opening a HELOC without using it is generally neutral or positive for your credit score. If reported as a revolving account, an unused HELOC increases your total available credit while keeping your utilization at zero. It also contributes to the average age of your accounts over time. Note that some lenders may close inactive HELOCs after extended periods of non-use. If this occurs, you would lose available credit and could see your utilization ratio increase on other accounts.
How closing a HELOC affects your credit score
Closing a HELOC, either by choice or at the end of the draw period, can affect your credit in several ways:
- Reduces available credit: If the HELOC was reported as revolving, closing it may increase your overall utilization ratio.
- Shortens credit history: Closing an older account can lower the average age of your accounts.
- Reduces credit mix: You’ll have one fewer account type contributing to your credit diversity.
For these reasons, keeping a HELOC open, even if unused, often makes sense unless the costs, such as annual fees, make it impractical.
Can a HELOC help improve your credit score?
Yes, a HELOC can improve your credit score in some situations, but the outcome depends on how you use it. Adding a HELOC introduces a secured, real estate–backed account that can strengthen your credit mix. Making on-time payments also improves your payment history, which is the most influential factor in FICO scores.
Compare HELOCs with multiple lenders. Start hereThat said, borrowing too much or missing payments can negatively affect your score. Since your home serves as collateral, HELOC debt has higher risk than unsecured credit, so responsible use is important.
How to use a HELOC without hurting your credit score
A few simple habits can help you benefit from a HELOC without risking your credit.
- 1. Keep your balance low relative to your credit limit. If your HELOC is reported as revolving credit, aim to keep your balance below 30% of your limit. Lower is better; borrowers with the highest scores typically use less than 10% of their available credit.
- 2. Make every payment on time. Set up automatic payments or calendar reminders. Even a single 30-day late payment can significantly lower your score.
- 3. Avoid closing your HELOC too early. Keeping your HELOC open during the draw period helps you build a longer credit history and maintain a higher total available credit.
- 4. Time your HELOC application strategically. Avoid applying for a HELOC immediately before applying for other major credit, such as a mortgage refinance or an auto loan. The hard inquiry and new account can temporarily lower your score at an inopportune time.
What credit score do you need for a HELOC?
Most lenders require a minimum credit score of around 620 to approve a HELOC, but that threshold is only the starting point. Borrowers with scores of 680 or higher usually qualify more easily and receive better rates and terms. Lenders also evaluate your:
- Combined loan-to-value (CLTV) ratio: Typically capped at 80-90%.
- Debt-to-income (DTI) ratio: Usually 43% or lower.
- Income stability: Steady employment and verifiable income.
- Home equity: Enough equity to borrow against after accounting for your first mortgage.
How to get a HELOC with a low credit score
If your score falls below typical credit score minimums, you still have options:
- Shop multiple lenders. Requirements vary, and some lenders work with lower-credit borrowers.
- Consider a co-borrower. Applying with someone who has stronger credit may improve your approval odds.
- Build more equity. Substantial home equity can sometimes offset a lower score.
- Improve your score first. Even small steps, such as paying down credit card balances or correcting report errors, can help.
Find HELOC options that fit your situation
A HELOC’s effect on your credit is not inherently positive or negative. It depends on how you manage the account. With on-time payments, reasonable balances, and strategic timing, a HELOC can be both a useful financial tool and an opportunity to build your credit.
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FAQs about HELOC and credit score
A hard inquiry typically lowers your score by 5 to 10 points temporarily. The impact fades over the first year, and the inquiry falls off your report after two years.
Hard inquiries remain visible for two years. However, FICO scores only factor in inquiries from the past 12 months, so the effect fades well before the inquiry disappears.
Both require a hard inquiry and affect your payment history the same way. The key difference: home equity loans are always reported as installment debt, while HELOCs may be reported as either revolving or installment debt, depending on the lender.
Yes, some lenders approve HELOCs for borrowers with scores as low as 620. However, you'll likely face higher interest rates and stricter requirements for equity, income, and debt-to-income ratio.
It can. Opening a HELOC adds to your total debt, which increases your debt-to-income ratio. This can affect your ability to qualify for a new mortgage. If you're planning a home purchase or refinance, consider timing your HELOC application for after that transaction closes.
