If you�re stuck under some high credit card bills and your credit rating is slipping, one of the best ways to immediately improve your credit is a home equity loan. When the loan closes, home owners have cash-on-hand to pay off bills. The result: their credit rating starts to improve immediately.

Banking executive Dan Ambrose refers to those as the �band-aid loan�, also known as the 2/28 in mortgage lingo.

�Most sub-time loans are short term loans, not A paper market, which means a fixed rate for two years then the loan adjusts.�

He�s talking about 30 year refinancing mortgages for people with less than stellar credit. Lenders offer a home-equity loan at a set interest rate for two years, and then the loan converts to a variable rate loan, where the interest rate fluctuates with the prime rate at the time.

That�s the down-side to the �band-aid loan.� Lenders usually charge higher interest rates for people with lower credit scores. Dan warns consumers to prepare themselves for when the loan converts. Home owners could face a higher interest rate than the original home loan, and their monthly payments could hit them harder.

If consumers take the cash from their equity loan and pay-off their bills in full, after 18 months of perfect mortgage payments, Dan says the consumer�s credit improves to the point that �now every bank will deal with them.�

If you think a home-equity loan could save you form your creditors, watch out for the current housing market in your area. �Watching the marketplace, I saw the writing on the wall�, says Dan. �The real estate values are going down. They�re starting to slow down drastically.�

And there�s the other potential roadblock for homeowners in this situation. Lower home values means less equity and possibly not enough equity to satisfy their payment needs. If the equity isn�t enough to pay all of your bills, and after two years your payments are even higher than before, you could possibly put yourself in a worse situation.

�People with marginal credit or no equity do have some options such as the 125% loan to get ahead.�

A 125% loan offers you a loan for more than your home is actually worth. Talk to a mortgage professional to make certain the credit risk is worth the return. Dan says most importantly; use the equity cash to pay-off those bills before you splurge on your dream vacation.

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