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mckeown

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Why is HELOC considered Revolving Credit to CRA?

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credit scoring can be pretty arbitrary

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Unfortunately, credit scoring can be very arbitrary.

For instance, a person with a $200k income every month goes out and spends $4k on his credit card, which has a $5k credit limit.  Even though he can easily afford this and he pays it off in full as soon as he gets the bill (so he's using his credit card in a very responsible manner),  his credit card is always being reported as using 80% of his credit limit, which lowers his score.

While you may have used this to pay for a home improvement, and you make regular payments like you would a mortgage, and you're paying off enough principal each month so that your balance will be down to zero in a few years doesn't matter.

The fact that it's secured doesn't really matter.  It's the fact that you CAN use it like people frequently use credit cards, charging purchases and making (frequently low) payments as required, and then charging more the next month, making no headway towards paying it off.

Unfortunately, the CRAs don't look at the trend of the balance (why, I don't know), they just look at the balance and compare that to the credit limit.  If you got a $50k line of credit and used $40k, that looks bad, and it will continue to look bad until the balance is mostly paid off.

The alternative would have been to get a traditional installment loan with (normally) fixed payments.  However, if you keep the HELOC open after you pay off the loan, this should help your credit, because you've got this big unused line of credit.   Although the banks really like you to have the HELOC, you might try contacting your bank to see if they will recharacterize your loan as an installment loan or perhaps actually change it to one.  Whether or not that is worth the effort is something you will have to figure out.

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because it IS a revolving loan

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In a traditional loan, you apply for a loan of a certain amount.  If you're approved, you receive the amount of the loan., and then make payments which reduce the balance of the loan.  If you want to borrow money ater on, even though with the new funds it would not exceed the original amount of the loan, you would have to apply for a new loan.

In the case of revolving credit, the lender establishes the amount of money the lender is willing to lend you.  At the beginning of the loan, you may borrow any amout up to your "credit limit" or even none at all.  Subsequently, you can borrow additional amounts of money without having to file an application, as long as the balance remains within your credit limit.

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HELOC loan is an open line of credit.  I think you are putting up your house as collateral with this line of credit as opposed to a traditional credit card where its unsecured.

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HELOC

I agree and hopefully understand what yiou have said , I just do not understand why if it is collaterlized the CRAs treat it as an unsecured loan as a regular credit card is.

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