Given the current declining trend in the housing market, some lenders have chosen to not only exit the Home Equity Line of Credit (HELOC) business but also to freeze their existing customers' lines. What does this mean for me?
If you have a HELOC with a lender who has decided to freeze their current lines, some impacts are rather blatant while others may not be so obvious. The obvious part is once your line is frozen, you are unable to make further advances. This could place you in a huge bind if in fact you had plans to use your HELOC for future home projects, a wedding, school expenses, vacation, or the like.
What's not so obvious? Well behind the scenes, when a lender decides to freeze or close your HELOC one of two things can happen. First, if you have no outstanding balance, the creditor will likely report to the credit bureaus (Equifax, Experian, and TransUnion) that the loan was closed by the credit grantor. Although this was closed due to no adverse action on your behalf, this is not a desirable notation on your credit report. If you have an outstanding balance, the creditor will likely reduce your credit limit to match your outstanding balance, which looks as if you have maxed out your credit line. Having a maxed out credit limit is also undesirable.
Having accounts that were closed by the credit grantor as well as having credit limits that are maxed out both impact your credit score. So, not only are you unable to use your credit line for future uses, your credit is also being tarnished by the lender's decision to exit the market.
What's next? Well, you have options. Not all lenders are exiting the market; in fact many lenders are still actively seeking this business. It would be wise to find a lender who is interested in your business. Refinancing your credit line will allow you to not only have the line of credit for future purposes but will also lessen the negative impacts of your lender's decision.