A discussion on a well guarded secret to keep your credit scores suppressed…

One of our consultants popped in yesterday afternoon to drop off a deal (a good thing).  He was telling me of a situation he ran into and wanted to know what kind of an effect it could have on his prospects credit score.

Well the situation was a $110k line of credit which had a balance of 96k.  This particular credit line was rated R-1 paid as agreed.  A perfect rating, right?  or was it?

Unfortunately we see this kind of thing all the time…“but wait” you say, this is a good thing!  Well, upon further investigation I found out this was actually a home equity line of credit, which makes sense.  I mean how may visa cards do you see with a 110k credit line?

Let’s look at this a couple of ways.  First thing is it’s a home equity line of credit so it’s tied to real estate which makes it a mortgage loan, right?  Well, yes, it is a mortage albiet a line of credit which by definition means revolving, right?  so is the R-1 rating correct or should it be M-1?

Survey says…it’s a Home Equity Line and while you don’t see this all the time the correct rating should be a mortgage shown as a Home Equity Line

When a creditor rates this line of credit as revolving or R-1 the FICO scoring system eats this alive because it sees 96K owed on a 110K available credit line so this person MUST be in trouble and might take a big hit to the credit scores.

When it is rated as a mortgage or Home Equity Line then FICO understands this is against real estate and grades it based more on payment history and not as heavily in the amount owed area.

So, then the question becomes “Why would a creditor do this?”  The answer is to keep your scores suppressed!  I know the truth can hurt but the reality is most creditors giving a home equity line do not want this line paid off.

Ok, so if they don’t want the line paid off then what’s the best way to keep these deals on their books?  You’ve got it!  By suppressing your credit scores, through misreporting, your options can become limited in what you might be able to do.  If your scores are suppressed you might not be able to get a mortgage refinance or another credit line at better terms so…..

It’s not fair but it is life and how most creditors play the game.  Fighting back is your right so if you find your HE Line of Credit rating like this it very well could be costing you money!  You can find out more about credit repair and should you make the effort to do it by CLICKING HERE.

Be Bold!

Herschel