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Clark Howard's Tips

April 17, 2008

There's a new trend that you need to know about if you have a home equity line of credit. Buried in your HELOC is a clause that allows the bank to freeze or reduce your line, at will, with almost no notice.

In his TV work, Clark recently did a story about Bank of America doing this to its HELOC holders. But many banks other than just BoA are doing this.

This is a double whammy because many banks charged fees upfront to set up the HELOCs. So far they're not refunding the junk fees.

Meanwhile, your credit score can also be demolished based on utilization of the HELOC. Say you have a HELOC with a $100K limit and you're only using $30K. That means you're using 30% of the limit, which is a relatively low level. But if your HELOC is suddenly dropped to a $30K limit, then you're using 100% of what's available to you and your credit is buckling under that strain.

Banks are slashing HELOCs because people are increasingly defaulting on them. Yet people with solid credit can get fantastic offers for borrowing right now because it's such an odd time in our economy. Clark's credit union is offering a 5-year fixed rate HELOC at 3.95%. That's really inexpensive! He also has access to car loans at 3.90% for new or used vehicles on loans of 4 years or less. There's such a stark contrast between what's available to people with good credit and people with bad credit.

Consumer advice courtesy of