Q: Please let me know how a big box lender decides who qualifies for personal lines of credit and home equity lines of credit.
I was refused a home equity line of credit on one of the so-called grounds: insufficient credit history. But two years ago, the same lender gave me a home loan for the property.
What has happened in two years? Do I have any recourse?
A: Two years ago, some lenders were still offering generous lines of credit and were allowing people to borrow based on the strength of their credit score – and not much else.
These days, all lenders have dramatically tightened their lending profile. In layman’s terms, that means they’re not only looking at your credit score, but are verifying all of the financial details of your life: income, assets, savings, cash available to close, and cash reserves. In addition to that, they want to see much higher credit scores to get the lowest interest rates available.
It’s possible that while you think you were turned down for an insufficient credit history (I agree, that doesn’t make much sense if they gave you a home loan two years ago), you were actually turned down for a home equity line of credit because you don’t have enough equity in the property.
Lenders today won’t give you a home equity line of credit that exceeds 80 percent of the value of the property. So, if your house is worth $100,000 today (not what it was worth two years ago), and you have a mortgage for $50,000, you might be able to get a home equity line of credit for $25,000 to $30,000.
Just because one big box lender has turned you down doesn’t mean all lenders will turn you down. So, shop around. You might try a credit union or a local lender that keeps some loans in its own investment portfolio.
Just be careful, you only have about 30 days to shop around for a loan and have each of those lenders obtain a copy of your credit report without your credit report taking a hit. In other words, if you apply in September with one lender, October with another and in November with a third lender, your credit score will go down with each successive application.
While you were able to get a home loan two years ago, if you don’t have enough other types of credit, or if you’re extended to far on the credit accounts you have, the lender might decide that your credit history isn’t sufficiently long enough to prove what kind of a credit risk you’ll be.
You should pull a copy of your credit history and credit score so that you can see for yourself what objections a lender might have and develop a plan to improve your credit. (You can pull unlimited copies of your credit history and credit report and it will not count against you.)
The best place to pull a copy of your credit history is AnnualCreditReport.com, which is a site maintained by the three major credit reporting bureaus, Experian, Equifax, and TransUnion. While you’re on the site, you’ll be offered the opportunity to buy a credit score for around $8. That’s a good value.