Which Is Better On A Credit Report?
Is it better to have a 15k loan with a 15k balance or have a 25k loan with a 15k balance?
I have been approved for a home equity loan on one of my properties. I only need about 15k but the lending institution is recommending I take a 25k loan to get the best package on the loan. I am thinking of taking the loan and immediately paying back the 10K excess I did not need. My payments will be higher, but I think this will have a better effect on my credit score than a loan with full balance.
Let me know your thoughts.
Thanks.
JS.
Bump
I had the same situation where there was a minimum I had to take out so I paid some of the rest back towards the principal and kept some to use with another bank to secure a line of credit for future deals
Thanks, LinLin.
Do you know if this had any effect on your credit score?
Thanks.
JS.
I believe for your credit score, it is best not to have used all your available credit on a single line. So in that respect 15k on a 25k loan would be best. But the lender will also look at your debt to income ration (which is not on your credit report) and count the full amount of the available credit as debt. So in that respect the 15k loan would be better. It is a trade off.
As far as your credit report goes, the limits being reached should only apply to a equity line, which sounds like a line would be better. Open up a line at 50k and use the 10k and you will have the extra in case. This will boost the credit score, and you dont have to pay a cent of interest on the extra. Plus, the rate will be lower but variable. Take time to look and find a bank that allows you to "lock" a section of the line into a fixed loan. I know a bank called U.S. Bank offers lines with 3 locks. The locks turn into equity loans, at a fixed rate.
My score actually went up 10 points about a month or so later because it showed the original debt amount and the amount owed after.
The HELOC on the other hand has dropped my score in the month that I have had it although I have only take out $25K of the $100K line.
BigPrivateMoney - I have perfect credit, three large credit lines with 0 balance, and work for one of the top 10 banks in the country. Guess who can not get a loan? Your available debt it counted in your debt to income ratio.
As far as your credit score, it is a very complicated formula and nobody - even the programmer who wrote it and the analysis who designed it - could tell yo exactly what would happen if you changed a single variable because all the varibles interact with each other. It is generally accepted that having a balance about 2/3 of you available debt shows that you know how to manage your debt and increases your score. When ever someone is trying to build credit or recreate good credit the advice is always to open some charge acounts, and to charge, and then make your monthly payments.
I wonder, some one else comment...
If there is great credit, could you ask the bank fir a uncrease in line, and turn it into a 20K line, keeping it below 50%?