Your credit score affects all elements of financing, from loan approval to the interest rate you receive. It can even influence other aspects of your life, such as car insurance premiums and employment opportunities.
So, if you’re thinking about taking out a home equity line of credit (HELOC), you may be wondering what impact it will have on your credit score.
Does a HELOC affect your credit score? Yes — opening a HELOC will impact your credit, as will the way you use it. Even closing a HELOC can cause your score to fluctuate.
- You may notice a slight dip in your credit score when you first open a HELOC, but it will likely be minor and temporary.
- Using your HELOC to consolidate credit card debt can lower your credit utilization ratio, which could improve your score.
- Payment history is the most significant component of your credit score — consistent, on-time HELOC payments will help your score improve over the long run.
Can Applying for a HELOC Impact Your Credit?
Yes, applying for a HELOC can impact your credit score, although the initial impact is relatively minor.
When you apply for a HELOC — or any loan — the lender will typically conduct a credit check as part of the application process. This is called a “hard inquiry” or “hard pull,” and it stays on your credit report for two years. It only affects your score for 12 months, and typically lowers it by around five points.
Planning to shop multiple lenders for the best rate? Multiple hard pulls won’t compound the damage if they occur within the right timeframe. FICO combines mortgage hard pulls completed within 45 days as a single inquiry. VantageScore uses a shorter 14-day window.
Most mortgage lenders use FICO scores for home lending, according to Experian — though it’s possible your HELOC lender will use VantageScore instead.
Note: Lenders typically only conduct a hard pull once you’ve formally applied. Many can prequalify you using a “soft inquiry,” which does not affect your score.
HELOCs and the Length of Your Credit History
Opening a HELOC may also affect the length of your credit history, which accounts for 15% of your FICO score. This factor considers:
- How long you’ve had your oldest account
- How long you’ve had your newest account
- The average age of all your accounts
By opening a HELOC, you reset the age of your newest account and lower the average age across all accounts. This likely won’t cause a significant drop, but expect another small, short-term dip.
How a HELOC Can Improve Your Credit
Despite the small initial impact of opening a HELOC, responsible use can benefit your credit in several meaningful ways.
Builds Payment History
Payment history is the single most important factor in calculating your credit score, accounting for 35% of your FICO score. Making consistent, on-time HELOC payments signals to future lenders that you’re a reliable borrower — and that positive track record compounds over time.
Diversifies Credit Mix
Credit mix (10% of your FICO score) reflects the variety of credit account types you carry. A diverse mix — which might include credit cards, auto loans, installment mortgages, and a HELOC — demonstrates that you can responsibly manage different types of debt.
May Improve Your Credit Utilization Ratio
Your credit utilization ratio is the percentage of available revolving credit you’re currently using. If you have credit cards with a $40,000 combined limit and carry a $10,000 balance, your utilization is 25%. Experts generally recommend staying below 30%.
FICO does not count a HELOC toward your credit utilization ratio (since it’s a secured loan tied to real estate). VantageScore does. Because HELOCs typically carry higher limits than credit cards, keeping a low balance on your HELOC could help your VantageScore.
Importantly, since a HELOC doesn’t affect your FICO utilization, you can use it to pay off high-interest credit card balances that do — potentially improving your FICO score in the process.
How Closing a HELOC Affects Your Credit Score
Closing a HELOC can negatively affect your credit in a few ways:
- If you’ve had the HELOC for years, closing it can shorten your average credit history — especially if it was one of your older accounts.
- Removing a tradeline reduces the diversity of your credit mix, which may lower your score slightly.
- For VantageScore users, closing the HELOC reduces your total available credit, which can increase your utilization ratio and hurt your score.
HELOCs and the Five Components of Your FICO Score
Payment History (35%)
On-time HELOC payments build your payment history. Missing payments — even during the interest-only draw period — can damage it.
Amounts Owed (30%)
FICO doesn’t count a HELOC toward your credit utilization ratio, but this factor also looks at your total balance across all accounts, how many accounts carry active balances, and — for HELOCs recorded as installment loans — how much of the original balance you’ve repaid.
Length of Credit History (15%)
Opening a new HELOC lowers both the age of your newest account and your average account age. Closing a long-held HELOC can similarly shorten your average credit history.
Credit Mix (10%)
Adding a HELOC to your credit profile likely improves diversification. Closing it reduces it.
New Credit (10%)
Applying for a HELOC generates a hard inquiry and adds a new account — both of which may cause a slight, temporary decrease in this portion of your score.
Frequently Asked Questions
Does an Unused HELOC Affect Credit?
An unused HELOC won’t significantly impact your FICO score beyond the initial hard inquiry, but it can help your VantageScore. Since VantageScore includes your HELOC in utilization calculations, an unused line increases your total available credit — which can offset other balances and keep your ratio low.
Can I Get a HELOC With Bad Credit?
It’s challenging but not impossible. Compensating factors like substantial home equity and a low debt-to-income ratio can help. Most lenders require a minimum credit score around 680 to qualify, though requirements vary. Even with a qualifying score, negative items on your credit report — such as bankruptcies or foreclosures — could still affect your eligibility.
Does a Home Equity Loan Affect Your Credit?
A home equity loan works as an installment loan with a fixed lump sum and set repayment schedule — different from a HELOC’s revolving structure, but similar in how it affects your credit. The main distinction: unlike a HELOC, a home equity loan doesn’t affect your credit utilization ratio at all, even under VantageScore. If you use the funds to pay off high-interest revolving debt, you may see a credit score improvement.
Will a HELOC Help Your Credit Score?
A HELOC will affect your credit score — but as long as you use it responsibly and make payments on time, the long-term benefits are likely to outweigh the initial dip. This is especially true as the account ages and you build a consistent payment history.
Homeowners who use their HELOC to consolidate revolving debt may see significant improvements, since reducing credit utilization is one of the fastest ways to boost a FICO score.
Ready to explore your options? Start your HELOC application with Refi.com today and see how much you may qualify for.
