Significance

• A line of credit tied to your house is another debt. A lender looks at your debt-to-income ratio to help determine if you can afford a new debt. Your debt-to-income ratio is the amount of monthly debt payments divided by your net monthly income. The lower the ratio, the better your chances of approval.
  
  

Effects

• A line of credit can negatively impact your credit score if it has not been paid on time. Additionally, a 30-days-late payment on a line of credit tied to your home within the past year will prevent you from refinancing or getting a new mortgage for a full year.
  
  

Considerations

• The amount of funds drawn on your line of credit has a direct relationship to your credit score. The higher the funds drawn, in comparison to your credit limit, the more of a negative impact on your credit score. If your line of credit is less than 30 percent of the credit limit, it can have a positive impact on your score as well.
  
  

Misconceptions

• Many consumers assume that all it takes to have a high credit score is merely paying their bills on time. However, the length of time since last account opening, amount of open accounts and recent inquiries can all have a negative effect on your credit score.
  
  

Prevention/Solution

• To have the best chance of a mortgage approval, make sure you have the highest credit score possible. Pay your line of credit on time, keep your balance below 30 percent of the limit, and do not allow multiple creditors to check your credit.