Are Your Credit Lines in Danger of Being Reduced or Closed?

You need to be aware that many financial institutions are closing or reducing open Lines of Credit and HELOC's due to the current financial conditions.

I've known people whose HELOC's were "rescinded" or reduced to a fraction of what the credit line was originally. One woman was in the middle of a major kitchen remodel and needed the HELOC to pay for it. She finally got it re-established, but only after hiring an appraiser to validate that the value of the house would be increased enough to justify the HELOC amount.

And it's also happening with credit cards, too. If you have a card with a large line of credit that isn't being used you may be surprised to get a letter reducing it, even if nothing in your credit report or FICO score has changed! Happened to me...all I had available was a little over a thousand dollars. So they added in what the next interest payment would be and reduced my line by $1,240.00 - can you believe it? A friend has had an AMEX card with a $25,000 LOC for over 7 years and they reduced it to $8,000.00 which was what he owed at the time. He objected, but they didn't budge.

For HELOC's I think the biggest issue is the amount of equity you have in the property at these new valuations they are coming up with. For example, if you have a $300,000 mortgage and a $50,000 HELOC and in today's market your house is valued at $500,000 then you'd probably have no problem. If it was now valued at $400,000 or less I'd think you'd need to worry. The 80/20 or even 75/25 ratio would be what I would use to feel comfortable.

And it all depends on what kind of computer appraisal software the bank uses...just look at www.Zillow.com and www.cyberhomes.com and www.eppraisal.com and you'll see three different values for your home - and you never know if the bank will use the mid-range that they are showing you or the low-end valuation just to be safe.

If you have a HELOC with funds available, think long and hard about tapping it and not taking the risk of having it disappear. You can put it in an interest-bearing account or staged CD's depending on whether you have an upcoming need for the money. It will cost you some money in interest, but the question you need to ask yourself is "If this LOC disappeared tomorrow would it hurt me financially now or in the foreseeable future?" If the answer is yes you need to take action.

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