Posts: 5,268
Registered: ‎03-18-2008
Re: 2nd mortgage seen as open credit on Fico score

d-07 wrote:

I have had a 2nd mortgage for 8 years for $123,000.  The lender convinced me to get a revolving credit.  As a result of the economy the lender reduced the line of credit to the amount of the home equity needed, which is the $123,000. 


Looking at my Fico score I am being severely penalized for having that much debt on a revolving credit.  I owe $510,000 on my first mortgage, $90,000 total in parent plus loan and approximately $500 on one line of credit (total line of $1,500) and $700 on another line of credit (total line of $2,000).  My credit score for both is 668.


Should I refinance the 2nd mortgage for a loan installment product?



Hello, and welcome to the FICO Forums.


One question: which FICO score are you looking at, and what is the source of your score?


You have a high-limit HELOC on your home, which by definition is a revolving line of credit.  Many people worry that this will be scored as a humongous credit card that has been maxed out.  However, the FICO scoring model takes into account the fact that HELOCs are often used as second mortgages.  As such, HELOCs with high CLs are excluded from the calculation of utilization.


For older models of FICO - e.g. the TU98 score and the most widely used Experian score - HELOCs with CLs above a certain threshold are scored as installment debt.  The exact threshold is not known, but it's believed to be somewhere around $50,000.


For newer versions of FICO - TU04 and EQ's Beacon 5.0 - if the account is described as a mortgage or real estate loan, then it is scored as installment debt as well.


So, this HELOC of yours should not be scored as revolving credit and your calculated utilization should not be close to 100%.  This has been the case for me - I've had a $98,000 HELOC for the last 4 years, and the remaining balance is still relatively high.  However, the FICO score formula still only calculates a utilization of 1-3%, which reflects only my credit card debt.  This is the case for both my TU98 and EQ scores.


Some non-FICO credit scores do not make the distinction between HELOCs used as mortgages and other revolving debt.  As a result, these non-FICO scores can be much lower than one's actual FICO scores.