Whenever someone is in a pinch and needing a little extra cash to get by, the first thing that comes to mind is likely a credit card or a personal loan. But those are not the only options. A line of credit may be able to help you get through the rough patch while providing various other benefits.
One key distinction between a line of credit and a personal loan is how you access and repay the money. With a personal loan, you get the money all at once and pay on a schedule the same amount every month. A line of credit is a little different. Instead of getting the money all at once, you can take it whenever you need it. And when it comes to repayment, instead of having a set amount, there is only a minimum amount that has to be paid back every month. This allows you to pay more in months you have extra cash and only pay the minimum in months you don’t.
Now that you have a better understanding of what a line of credit really is, here are 5 benefits to opening a line of credit.
Build Your Credit
This can be true as long as you don’t take out your entire credit line all at once. If you use smaller increments of the credit line, you could build your credit up by lowering your credit utilization ratio. If you’ve read our blog on FICO Score (Which you can read here if you haven’t *Link*) you know that credit utilization is one of the larger factors, making up about 30% of your score. That is one the larger factors that determine your credit score. Having a line of credit and not over utilizing it can help improve your credit score.
It’s important to note this may not be the case initially. When you apply for a line of credit, the lender will run your credit which may reflect negatively on your score. As time goes on, the credit score should rebound and could become higher than before.
Pay Less in Interest than a Credit Card
If you have a good enough credit score, choosing to use a line of credit over a credit card can result in you paying less in interest. This is because credit cards tend to have a higher interest rate than a line of credit. When you have a poor credit history, this may not be the case.
The holiday season can be hard on your wallet and put a lot of stress on you. A line of credit can be useful during the holiday season in relieving some of that burden by helping you pay for gifts and other holiday season expenses.
Homeowners are well aware that the upkeep of a home can be expensive. If you’re planning on making renovations anytime soon, a Home Equity Line of Credit, or HELOC for short, may be something to help you pay for those renovations. A HELOC can be made out for various amounts and has few limitations on what it can be used for. To read more about a Home Equity Line of Credit, check out our previous blog article here http://blog.centralnational.com/2019/04/what-do-i-do-with-my-heloc/.
Peace of Mind
If you don’t have an emergency fund, a personal line of credit could be used as a temporary one while you work to build some savings. A recent study found 60% of Americans claim they can’t pay an unexpected $1,000 expense such as a trip to the emergency room or a car repair with their current savings. If you fall in this category, then a line of credit may be something for you to consider.
If you’re interested in learning more about what Central National Bank offers for a line of credit you can visit our website and apply today at https://centralnational.com/personal/lending.asp#creditlines.