How to Maximize Your Personal Line of Credit

Published on March 26th, 2019 by CreditFresh

Someone checking a line of credit account on phone with laptop and papers on desk

You’re considering getting a line of credit and you want to use it wisely. Perhaps you’ve heard that properly leveraging a revolving line of credit can actually help you build your credit. 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 what is called “revolving credit.” That means a borrower may have access to up to a certain amount of money, 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.

A man taking out money from his wallet while seated on chair

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.

Today, the major banks’ lending requirements have never been more stringent, which has placed a higher demand on non-bank lenders and people with damaged credit (or no credit) have more options. This includes forgoing a trip to the lender’s office and applying for a line of credit online.

Applying Online For a Line of Credit

If going through a bank isn’t an option for you, you might consider a CreditFresh Line of Credit by CBW Bank. We help people with damaged (or no) credit get access to the funds they need.

The process is really simple:

Step 1: Check Your Eligibility
Start with a simple process and answer a few questions online. It only takes a few quick minutes, with no negative impact on your credit score.

Step 2: Accept Your Offer
If eligible, simply choose your credit limit, securely verify your details, then review and sign your agreement.

Step 3: Get Your Funds
Once everything is signed and official, the money may be in your bank account as soon as the next business day.

Even if it is more expensive, this process may be a good route to go if you’re in need of help and need money quickly, without an intrusive knock on your credit report.

A woman smiling while applying for line of credit on her laptop

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.

These situations may include:

Unpredictable Income

Perhaps you may need financial help in the near future because you have unpredictable income because you work on commission or you’re self-employed. You don’t have the benefit of a full-time salary with the same amount of money reliably deposited in your account every 2 weeks.

In this case, a line of credit may act as a safety net. You may use it to pay for things while your income is low, then pay it back when your income is higher.

Unexpected Emergencies

The line of credit may also act as a safety net when one of life’s sudden emergencies come up. This could be 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 can 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 purchases on it without a clear idea of how and when you’re going to pay down the balance.

Here are the 3 things you should do with your line of credit:

1. Keep a Low Balance
Cropped image of hands taking out money from wallet

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% of your available credit is bad because it shows that you’re borrowing heavily, whereas using 10% 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 it Active

If you’re attempting to build your credit, constantly keeping a zero balance on your line of credit isn’t likely to help you, despite what we just said about credit utilization ratios. You will still want to use your line of credit – credit agencies want to see some (responsible) activity.

If you were to get a CreditFresh Line of Credit, your payments and balance would be reported to credit agencies. The act of using the line of credit to make relatively small purchases and paying the balance down quickly can be a good way to build credit, as those payments would be reported.

Some borrowers have had success putting their gas purchases or some reasonably small monthly bills on their line of credit. The strategy here is to put something you’re already budgeted for on your line of credit, then pay it back quickly to:

  • Keep the line of credit active
  • Build credit by making timely payments
  • Build credit by keeping a low credit utilization ratio

This method could be an effective credit building technique, if you stay on top of your payments.

Keep Living Within Your Means

As we just covered, a line of credit is not going to be a productive step towards a better credit rating if the borrower constantly carrying a high balance or making irregular payments.

One of the core principles of rebuilding your credit 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 can truly see what that purchase would “set you back.”

Utilizing a line of credit as a safety net may be the best way to ensure your budget and your plan can succeed. This way, you may be in a much better position when unplanned 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 of your other regular bill payments on time.

If you’re rebuilding your credit, you’re likely not going to have a lot of room in your budget for emergencies. In fact, a recent study revealed that about half of all Americans would have trouble finding $400.00 to deal with these types of expenses.

However, as we said above, it’s not a good idea to just put these expenses on a line of credit and forget about them. Even if the expense is unplanned, 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 we discussed today sound like what you’re facing? If so, we may be able to help.

A CreditFresh Line of Credit by CBW may act as a safety net and set you on the path towards a better financial future. 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.