Does a HELOC Affect Your FICO Score?

Home equity lines of credit, or HELOCs, let you access cash using your home as collateral, and they often allow you a larger credit limit than an unsecured line of credit. Depending on the size of your HELOC, the FICO scoring algorithm may treat it as a revolving line of credit, similar to a credit card, or as an installment loan, similar to a mortgage. The Fair Isaac Corporation, which created the FICO scoring algorithm, doesn't release that cutoff amount to the public.

FICO Score Ding for Opening

When you open your HELOC, your score will take a small ding because of the new inquiry on your credit report. Any time you apply for new credit and the lender pulls your credit report, an inquiry goes on your report. However, only inquiries in the past 12 months affect your FICO score, even though they remain on your report for two years.

Debt Owed

The current balance on your HELOC is considered in figuring your credit score. Generally, the more you owe, the bigger the negative impact on your credit report. If your HELOC is characterized as an installment loan for credit scoring purposes, your score will also consider how much you currently owe compared to how much you owed at the start. As you pay down your balance, your credit score will improve.

Debt-to-Credit Ratio

If your HELOC is classified as a line of credit for credit scoring purposes, your balance compared to your credit limit will also impact your credit score; if it's more than 20 percent, you could see a drop in your score. For example, if your HELOC is limited to $20,000 and you use $10,000, that's 50 percent of your available credit used. suggests that if you won't be tempted to spend more than you can repay, consider getting a larger line of credit than you need to improve the ratio.

Payment History

No matter how your HELOC is categorized, one thing is certain: How you pay your bills will have a big impact on your FICO score. The algorithm counts your payment history for 35 percent of your score, so by paying on time every month, you can boost your score. However, if you miss payments, you'll see your FICO score drop as a result of your HELOC. According to the Fair Isaac Corporation, one or two missed payments won't necessarily kill your score as long as they are overshadowed by a history of consistent on-time payments.