declined to proceed on a HELOC; will this hurt my credit rating?

17 years ago

The bank person I spoke to about my checking account talked me into applying for a larger HELOC to get a lower interest rate. I asked if that would affect my credit rating--no, she said.

Then, when we started getting all the calls from the follow-up people, one of the bank people said, "there's a 3-year prepayment penalty if you close the account before then."

Since one of the reasons we have a HELOC is for the deposit on new place, there's a very HIGH likelihood we'll sell before 2 years are up, so we'd have to pay that penalty. It would offset any savings we'd make. So I told the bank, we don't want it after all.

I got a form letter from the bank that said, "After careful consideration, we have decided not to give you the loan."

Yikes! that makes it sound like THEY rejected ME. I'm sure they needed to go through some formal step that would close out the application, but--

this has me worried now. Will it show up on my credit rating as a a rejection? and mess me up?

Comments (6)

dave_donhoff
17 years ago
Hi Sue,
You're safe, nothing derogatory is reported to your credit for a loan denial (let alone a borrower-withdrawn application, which is what this was.)

By regulatory law any lender cancelling out & closing an application case file is supposed to issue a "Credit Denial Disclosure" (which is oddly named in your case, but required to be issued nonetheless.)

There are other HELOC programs available that have no prepayment or cancellation fees... or whose fees are much shorter in duration (3-12 months) and/or are very cheep ($200-$300-ish.)

Luck!
Dave Donhoff
Strategic Equity & Mortgage Planner
talley_sue_nyc
Original Author
17 years ago
I have a HELOC that's big enough--though it caused me some problems. We tapped it for 4/5 of its value (used it for a deposit on the home we are now not buying), and American Express cut my credit-card limit because I am close to the outside limit on all my major current lines of credit (2 credit cards and the HELOC).

So, I thought I'd get a bigger one to eliminate this AND pay less interest if we had to tap it again in the future (since we backed out of the deal and are going to try again in several months).

I did call Chase and was told the same thing--denials are never reported. I guess I could have called them before posting, but at least I called immediately after, LOL!
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Here is my 'guess' and it is just that...a guess. Concerning 2 and 3. refinanced my mortgage early in 2005 to a very good rate. This now shows as a 'new' loan, and it has not been paid down much in one year, by their way of thinking. I have about $160K in untapped equity (no HELOC or anything), in what remains If I understand you correctly, you have equity in your home, but have not applied for a HELOC on it. Right? They don't have any idea really then that you have that equity...right? Now this is just a 'thought' but you might want to pay off the car loan with some of that equity in your home, and then concentrate all your efforts toward paying off the HELOC. I imagine there will be some who will say 'NO' to doing that though. I applied and was approved for a HELOC a few years ago, but have never tapped into it. I 'thought' I might want/need it to get the driveway paved, but found another way that was interest free for a year and that was all I needed. I might add that I have no loans 'open' at this time and no revolving credit 'owed', as CC are paid off each month. My guess is that once the car loan is paid, that your score will improve significantly. In the meantime your score is a high B, which is still miles above the norm. Sue
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I'm an ametuer so take my comments at face value. First, understand that there are two types of loans: Home Equity Line of Credit (HELOC) and a Home Equity Loan. A HELOC works largely like a credit card in that you are approved for a certain amount and then you go spend it and your payments are calculated similar to a credit card. Depends on the agreement, but I know for mine at the five year point I couldn't charge anymore and was set on a payment schedule to pay off at 15 years. A Home Equity Loan is essentially a 15 year term loan from the beginning. They give you a set amount of money with a set payment schedule to pay it off in 15 years. This may be a worthwhile investment but I'll agree with Bill in making sure you can afford it. You mention a 6% rate which may be a guess on your part but in reality if that's the rate you can get then you've got credit problems and should reconsider this adventure.
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kudzu9
17 years ago
I did the same thing a number of years ago, and ended up cancelling after I got part way through the process and re-considered. I, too, got one of those stupid, CYA letters from the bank. After venting to the loan officer, who told me he would send a letter clarifying that I cancelled, I let it drop. Of course, he never followed through, but I also never found any evidence that it had been reported or affected my credit rating in any way.
talley_sue_nyc
Original Author
17 years ago
the guy at Chase said my fear was not uncommon; they often get calls like mine, apparently.

I asked him to add a note to the suggestion box that they have a RejectionA and RejectionB subroutine, but I'm sure it'll never happen.

The bank knows that the ONLY harm was a spike in your adrenaline levels, so it's not worth their energy to mess w/ the automatic system, I bet.
sparksals
17 years ago
Talley Sue,

If you belong to USAA, their HELOC's and HE loans do not have an early close out penalty. There is no time limit to carry the HELOC and they have lockin hybrids too.

When we took out our HELOC in Nov. We got prime minus 1.
myfask
17 years ago
sparksals
don't you love USAA !!
their closing costs were about $4k less while I was mortgage shopping.

declined to proceed on a HELOC; will this hurt my credit rating?

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declined to proceed on a HELOC; will this hurt my credit rating?

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