I just refinanced my home equity line of credit to help pay for some remodeling we’re doing. I don’t think we’ll keep a large balance on it for more than a few months - we’re mostly just waiting for some investments to age a little longer before we pay it off. That said, we do want to keep the option open to keep a balance if we want to. The balance would not be anywhere near the limit of the line of credit - depending on what we go for, line-of-credit-wise, we’re talking 25-50% max, and probable way less (down to zero potentially).
Bank just called back and lo-and-behold, they’re willing to offer us WAY more than we asked for. Like, 3-4x as much as we really need. As it’s a line of credit, we’d only pay interest on the money we borrow, so I’m tempted to say “go for it.” It’s handy to have lowish-interest credit sitting around sometimes.
That said, I thought I’d heard talk of potentially damaging your credit rating if you take out too much credit. I get it that if you have large balances that could happen. But if I have a big line of credit, but reasonable-to-no balance, is there a downside to that? Mr. Athena and I are not the kinds of folks who say “whoooheee! We’ve got ALL THIS CREDIT, let’s SPEND it!!!” so I really doubt we’d overspend and get ourselves in trouble. Indeed, the existing line of credit we’ve had for ~15 years had a zero balance up to a few months ago.
I’ve maintained such a credit line for years. No downside that I can see, provided you can resist the temptation to use your home equity as a piggy bank and max the thing out without a good reason. During the recession, I actually wound up paying off my remaining small fixed mortgage on the credit line, which was tied to prime rate and had become a very low. When I thought of doing that, I wondered what was wrong with THAT picture, too, but it turned out that nothing was - in fact, I could decide on a reasonable “mortgage” payment to reduce the principal on a schedule of my choosing. And HELOC interest is deductible, just like mortgage interest. My credit score is very good anyhow.
At one point I recall hearing that other people may be less willing to give you credit if they see you have the ability to create a lot of debt very quickly. So you try to get a car, but they see that you have a handful of credit cards with a total limit of 100k and a HELOC with a limit of 50k and suddenly the car people get worried that if something happens and you max all that out, they might not get paid.
That’s what I heard. Personally, I’ve never had the issue. I’ve got three credit cards with a total limit of about 50k and a combined balance of about zero. A house which at one point had a credit line and two cars. The only thing anyone has ever said about my credit is that it’s really good.
Perhaps it depends, at least somewhat, on your credit worthiness to begin with.
You could certainly take it now, keep an eye on your credit score and if it becomes an issue close it (if it’s paid off) or have them reduce the limit to much closer to what you owe on it at that point.
Something to keep in mind, if you aren’t about to ask anyone for credit, it really doesn’t matter what your credit score/report looks like. Not that you shouldn’t keep it up, but some additional credit isn’t going to make any difference if no one is going to be poking around at your report.
There was one time, however, when one of my credit cards raised the rate to the default amount (29.99? 39.99?). When I called them, they said they looked at my credit report and I was too far extended. Turns out they saw a brand new maxed out HELOC. When I explained that to them, they changed the APR back.
I recently sold my home which also had an open HELOC with zero balance. We had used it for a remodeling project but paid it off in a few months. Selling the house also required us to close the HELOC and because we were closing it early (you were required to leave it open for 3 years) they charged us a penalty something like $300.
Now I couldn’t tell you if this penalty amount was based on how large the open HELOC was for but it may be something you want to look into.
That’s pretty much it - lots of credit availability (unused) is good for your score, as it shows fiscal responsibility, but for large-dollar approvals like a home loan it can be concerning. I’ve heard of lenders asking people to close an account or two before approving someone, but I don’t think the practice is common.
Thanks everyone. I’m also having a hard time finding any drawback to it, other than the hard pull and that was going to happen even with a modest credit line increase. We’ll likely go for the full amount. Seems kinda crazy but hell, why wouldn’t we?
I believe that’s when I first heard about it. IIRC my parents were buying a house and the thing that was holding them back was that they had opened a store charge at just about every place they walked into.
Don’t open a store credit card to get 10% off your purchase today, saving a few bucks isn’t worth the hit your credit can potentially take. Saving a percentage off of every purchase at a place you use regularly, I can understand, and it’s why I have an Amazon card. At the very least if you’re going to open a store credit card to save x% on that purchase, wait until you’re making a big purchase.
I’ve never heard of unused credit lines with zero balance hurting a credit score, once the effect of the ‘hard’ credit check to get them wears off. They will if you use a significant % of the line or you have any balance on more than a few of them. And the credit bureau’s count paying off the bill in full after the end of the statement period as a balance. IOW if you spend $1,000 on a credit card by statement closing, then pay the $1,000 during the grace period after that, you pay no interest and most people consider that ‘I don’t run a credit card balance’. But the bureau’s count the balance as of the statement closing date as debt. And if you have such ‘paid in full during grace period’ balances on a bunch of cards it will lower the score even if the % usage is small. But for balances which close at zero at statement period end (you either don’t use them at all or pay them off before the statement closing date), I’m not convinced that has any ongoing negative effect on credit score.
I don’t know about special cases where a particular bank looks beyond credit score and doesn’t want a customer to have unused lines so asks they be closed. But in terms of the number I don’t think having lots of store credit cards would be a negative, again unless you run balances as the bureau’s see it (balance as of closing date), and besides the little hit it might generate when you first open the account due to the credit check and due to it lowering the average age of accounts.
I don’t do this for a living though. On some personal financial websites people will chime in who actually do, or seemingly credibly claim to.