Are you considering getting a line of credit and want to make sure you use it wisely? Perhaps you’ve heard that properly leveraging a revolving line of credit may help you build your credit history if your payments are reported to a credit bureau. Or maybe, your credit is less-than-perfect right now and you may not be sure if you even qualify for one.
Like any financial venture, getting the most out of your line of credit is all about knowing as much as you can going into it, and making a solid plan of action for when you have it.
Today, we are going to give you the information you need to see exactly what a personal line of credit is, and how it differs from other types of borrowing. We will also explore how you may use one and get the full benefit of its flexibility and potential.
The Basics: What is a Revolving Line of Credit?
A line of credit is a form of “revolving credit.” This means a borrower has access to a credit limit, instead of the lump sum of money that one would get with a personal loan.
A revolving line of credit may offer more flexibility than a traditional loan. The borrower is certainly under no obligation to use the entire line of credit. They may have a line of credit for $3000, but they’re free to simply use $300.
How Do I Apply For a Line of Credit?
For years, banks or non-bank brick and mortar lenders were the primary providers of lines of credit.
You would go to their office or location and they would assess your financial situation (your employment, income, credit history and other factors) and they would hopefully come back to you with an approval and an amount. If you had damaged credit or no credit, a bank would be less likely to work with you and your path would most likely lead to a non-bank lender.
Applying Online For a Line of Credit
If you find it impossible to get to a brick and mortar location, you might consider a CreditFresh Line of Credit by CBW Bank. This online product may make the process of submitting a request for a line of credit easier for people who can’t travel or bank during opening branch hours.
The process is really simple:
Step 1: Submit Your Request
Start with a simple process and answer a few questions online. It only takes a few quick minutes, and submitting a request does not impact your credit score.
Step 2: Get Approved
If eligible, securely verify your details, then review and sign your agreement.
Step 3: Request a Draw
Once everything is signed and official, if you request a draw, the money may be in your bank account as soon as the next business day.
This process may be a good route to go if you’re in need of help and need money quickly.
Situations Where a Line of Credit May Be Helpful
You may opt for a line of credit if you know you will need financial help, but you’re not exactly sure how much you will need.
This situation may include:
Unexpected Emergencies
A line of credit may also act as a safety net when one of life’s sudden emergencies come up. This could be something like a car accident or a sudden medical bill. These events have no regard for how much money you have saved or where you happen to be in the pay cycle.
Having a line of credit in advance of these emergencies may be good. The funds are there if you need them, but you’re only paying fees on what you actually use.
A line of credit may give you the flexible loan terms and the quick turnaround-time you’re looking for. You may get the money you need, without having to resort to other things like paying your rent or bills late to cover the sudden cost.
How Can I Get the Most From My Line of Credit?
Like any type of borrowing, there is a right and a wrong way to use credit. The wrong way to use a line of credit is to enter into the agreement without a plan, or putting unnecessary purchases on it without knowing how you’ll afford them.
Here are the two things you should consider if you rely on a personal line of credit.
1. Keep a Low Balance
One of the key pillars of your credit score is your credit utilization ratio, which is simply how much of your available credit you are using. Using 90 percent of your available credit can be bad because it shows that you’re borrowing heavily, whereas using 10 percent of your available credit says you’re less reliant on it.
Experts disagree on what exactly a good credit utilization number may be. Some analysts will say you want to be in the area of 30%, while others say there is no magic number and you simply need to be as low as possible.
2. Keep Living within Your Means
One of the core principles of good financial habits is creating a budget and living within your means, month after month. This ensures that you’re always aware of the money going in and out of your account.
Your budget is the tool that shows you exactly what living within your means actually looks like for you. You may be tempted to make a large purchase, but if you’re aware of everything in your budget, you may have a better understanding of how that purchase would “set you back.”
Utilizing a line of credit as a safety net may be a helpful way to ensure your budget and your plan can succeed. This way, you may be in a much better position when unplanned emergency expenses pop up. You could have a line of credit to help you cope with these sudden expenses, while your life goes on and you’re still able to make all your other regular bill payments on time.
A recent study revealed that about 40 percent of Americans would have trouble finding $400 to deal with these types of expenses.
But remember, it’s not a good idea to put these expenses on a line of credit and forget about them. Even if the expense is an unplanned emergency, the borrower would still need a finite plan on how to pay the balance down as quickly as possible.
Want More Information About a Line of Credit?
Did any of the situations covered today sound similar to what you’re facing right now? If so, a personal line of credit may be able to help.
A CreditFresh Line of Credit by CBW may act as a safety net. The process is simple, quick, and completely transparent, with clear terms and no unexpected hidden fees.
You may receive a personal line of credit from $500 - $2,500. The application process will not negatively impact your credit report, and you can click here to get started.
Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.
