Great credit scores pay off for couple

Dear Dr. Don,
I recently opened a home equity line of credit with a credit limit of $239,000. I immediately used $178,000 and before the first payment was due, I paid off the loan in full so it now shows a zero balance.

I wanted the loan to bridge a transaction that delivered to me a significant amount of cash and did not want to liquidate other less-liquid assets. My wife and I had credit scores in the low 800s before taking out the HELOC. With respect to keeping our credit scores up, should we leave the HELOC open with a zero balance or should we close it? We do not need it and, obviously, have no discipline problem dealing with credit.

Note: We have just one credit card (Visa) and one debit card (MasterCard). We never pay interest on these and we have no debt other than our home mortgage, i.e., we pay cash for our cars, etc.
— Solin Scores

Dear Solin,
You and your wife must both have great credit histories if you had credit scores in the 800s when applying for the HELOC. I can understand why you’d want to keep them pristine.

Your credit score is based on the information in your credit report. The big three consumer reporting agencies — Equifax, Experian and TransUnion — don’t necessarily have all of your open accounts reporting to them. So your credit histories and credit scores may vary by CRA. All three use FICO to create their credit scoring models.

Five different factors determine how that credit history is evaluated for a credit score, as shown in the graphic below.

Elements of a FICO score

If you cancel the HELOC, the closed account would still show up on your credit report. However, with no negative payment history on the account, the impact on your credit score should be minimal.

You’re not big users of credit, and the nice thing about credit histories is that time heals all wounds. Any short-term ding your credit report might take from closing the HELOC will right itself in short order.

My recommendation, however, is to test drive the impact an open HELOC will have on your credit score by getting copies of your credit scores a couple months after the date you paid off the line of credit. If your credit scores are still where you want them to be, then it becomes your choice whether you want to keep the line open.

An earlier column, “HELOC activity may affect FICO score,” explains the credit score implications for readers who do carry a balance on their line of credit.

Read more Dr. Don columns for additional personal finance advice.