A HELOC will lower your credit score when you open it, but the damage is temporary and usually small

Opening a home equity line of credit triggers a hard inquiry into your credit report, which typically drops your score by 5 to 10 points. That dip fades within a few months. The bigger long-term effect depends on how you use the HELOC: if you borrow heavily and carry a balance, your credit utilization ratio climbs and your score stays lower. If you open it but rarely use it, the score impact is minimal after the initial inquiry fades.

The credit bureaus — Equifax, Experian, and TransUnion — treat a HELOC like any other credit account. They track whether you make payments on time, how much of your available credit you are using, and how long the account stays open. Each of these factors feeds into your credit score calculation.

Key Takeaways

  • A hard inquiry when you open a HELOC typically lowers your score by 5 to 10 points, but this effect disappears within a few months.
  • If you borrow a large amount and carry a balance, your credit utilization ratio rises and keeps your score lower as long as the balance remains high.
  • Making on-time payments on your HELOC actually helps your credit score over time by building a positive payment history.
  • Closing a HELOC after you stop using it can hurt your score because it reduces your total available credit and shortens your average account age.

The hard inquiry and new account penalty

When you explore for a HELOC, the lender requests your full credit report from one or more of the three major credit bureaus. This is called a hard inquiry, and it shows up on your credit report for two years. Most credit scoring models dock 5 to 10 points for a hard inquiry, though the exact amount varies by scoring model and your overall credit profile.

The hit is temporary. After three to six months, the inquiry's impact on your score shrinks significantly. After 12 months, it barely matters at all. Opening a new account also temporarily lowers your average account age, which is another factor in your score. Again, this effect fades as the account ages.

If you are shopping around with multiple lenders to compare HELOC rates, do it within a 14 to 45-day window. Most credit scoring models count multiple inquiries for the same type of credit (like a mortgage or HELOC) as a single inquiry if they happen close together. This limits the damage from rate shopping.

How borrowing and balance affect your score

Credit utilization — the percentage of your available credit that you are actually using — makes up about 30 percent of your credit score. If you open a HELOC for $100,000 and borrow $50,000, your utilization on that account is 50 percent. The higher your utilization across all your credit accounts, the lower your score tends to be.

A HELOC that you open but never use has almost no negative effect on your score after the initial inquiry fades. The account sits there with a $0 balance, which counts as 0 percent utilization. But if you draw $30,000 and carry that balance month to month, your utilization on that account stays at 30 percent (or whatever percentage that represents of your total credit line). This keeps your overall utilization higher and your score lower.

The relationship is not linear. Utilization below 10 percent has almost no negative effect. Between 10 and 30 percent, the effect is mild. Above 30 percent, your score drops more noticeably. Above 50 percent, the damage accelerates.

Payment history and long-term score improvement

Once the initial hard inquiry fades, your HELOC can actually help your credit score if you use it responsibly. Payment history — whether you pay on time — accounts for 35 percent of your credit score, the largest single factor. Making on-time payments on your HELOC builds this history and pushes your score up over time.

A HELOC also adds to your credit mix, which accounts for about 10 percent of your score. Credit bureaus like to see that you can manage different types of credit: revolving credit (credit cards, HELOCs) and installment credit (car loans, mortgages, personal loans). Having both types in good standing helps your score.

The longer you keep the HELOC open and make on-time payments, the more this positive effect compounds. After two or three years of on-time payments, the initial hard inquiry is long forgotten, and the account is working in your favor.

What happens if you carry a large balance

If you borrow a substantial amount on your HELOC and carry it as a long-term balance, your credit score will remain depressed as long as the balance is high. This is purely because of utilization. A $50,000 balance on a $100,000 line is 50 percent utilization, which is a significant drag on your score.

The interest rate on a HELOC is usually lower than a credit card, so carrying a balance is less expensive than it would be on plastic. But the credit score cost is the same: high utilization hurts your score regardless of the interest rate you are paying.

If you need to borrow a large amount, you have two options for managing your score. First, you can pay down the balance as quickly as possible. Every dollar you pay reduces your utilization and starts lifting your score when ready. Second, you can request a higher credit limit from your lender, which lowers your utilization percentage without changing the dollar amount you owe. Not all lenders allow this, and some may do a hard inquiry to approve a limit increase, which would create another small dip.

Closing a HELOC and the score impact

Closing a HELOC after you have paid it off can hurt your credit score, even though you might expect the opposite. When you close an account, you lose that available credit from your utilization calculation. If you have other balances on credit cards or other lines, your overall utilization ratio climbs, and your score drops.

You also lose the account's contribution to your credit mix and your average account age. If the HELOC was one of your older accounts, closing it lowers the average age of all your accounts, which is a small negative factor.

The damage is usually modest — 10 to 20 points — and it fades over time as the closed account ages off your report. But if you are not planning to use the HELOC again, it is often better to leave it open with a $0 balance. There is no annual fee on most HELOCs, so the cost of keeping it open is zero.

Comparing HELOC credit impact to other borrowing

A HELOC affects your credit differently than a credit card or a personal loan. A credit card is unsecured revolving credit, so opening one typically drops your score by 10 to 20 points. A HELOC is secured by your home and is also revolving, so the initial impact is similar — usually 5 to 10 points. A mortgage or car loan is installment credit, and the initial impact is often slightly smaller because lenders expect you to shop around.

Over time, the HELOC's effect depends on how much you borrow. If you use it to pay off high-interest credit card debt, your overall utilization might actually drop (because you are consolidating balances), and your score could go up despite the new account. If you use it to borrow additional money on top of existing debt, your utilization climbs and your score falls.

Frequently Asked Questions

How long does the hard inquiry hurt my credit score?

The hard inquiry itself stays on your report for two years, but its impact on your score fades after three to six months and becomes negligible after 12 months. The bigger factor is usually your credit utilization — how much of the HELOC you actually borrow and carry as a balance.

Will my credit score go up if I open a HELOC and don't use it?

No, not when ready. The hard inquiry will lower your score by a small amount. After the inquiry fades, the unused HELOC will have almost no effect — neither helping nor hurting. It may help slightly over many years by adding to your credit mix and average account age, but the effect is minimal.

Can I improve my score by paying down my HELOC balance?

Yes. Every dollar you pay toward your HELOC balance lowers your credit utilization ratio, which can raise your score within a billing cycle or two. The effect is when ready and direct: lower balance equals lower utilization equals higher score.

Should I close my HELOC after I pay it off?

Usually no. Closing it will lower your score slightly by reducing your available credit and shortening your average account age. Since most HELOCs have no annual fee, keeping it open with a zero balance costs nothing and preserves your credit profile.

Does a HELOC hurt my score more than a credit card?

The initial hard inquiry impact is similar — both typically drop your score by 5 to 20 points. The long-term effect depends on how much you borrow and carry as a balance. A HELOC usually has a lower interest rate, so if you are borrowing money anyway, a HELOC is cheaper, but the credit score impact of carrying a balance is the same.