With a choice between good and bad credit score, you don’t have to be a financial prodigy to know which one is better. But sometimes, you don’t always get to choose.
Maybe you get sick, lose a few days pay, and face an unexpected hike on your utility bills. The next thing you know, you fall behind on your bills. Even if you manage to pay them off eventually, the evidence of your slip up may hang around on your consumer file.
Luckily, no score is permanent. This means you may climb your way out of bad credit by setting good money management habits.
But what happens if you face an unexpected emergency before you’re out of the hole? A personal line of credit may be a flexible way to borrow if your savings fall short.
What is a Line of Credit?
A line of credit (an LoC or line, for short) is a flexible way to borrow. It comes with a pre-determined maximum amount you may borrow at anytime.
You may tap into your limit as much or as little as you need. You can use all of it on one big purchase, or you may use it sporadically over several smaller ones. But with each purchase, the amount of credit you have available decreases until you have nothing left.
Paying off your balance frees up your available limit again. If you make all your payments on time, you’ll be able to withdraw funds up to your full limit without reapplying.
Unlike a loan, you won’t accrue interest and finance charges on your total limit. These charges only apply on the amount you’ve used, or your outstanding balance.
Another unique feature of the LoC is the minimum payment. You may pay a small fraction of the outstanding balance to keep your account in good standing. Just note that any balance you carry over to another billing cycle will accrue interest and finance charges.
It’s always a good idea to pay more than the minimum, as you may free up your available limit and reduce your interest charges. Tweak your budget by reducing what you spend on groceries and other expenses to put more towards this bill.
How to Get One with a Less-Than-Perfect Score
People with a high score will have the greatest selection of products, and they’ll likely access cheaper rates. If you have a bad score, you may have fewer options, and your rates, terms, and conditions may vary drastically.
A financial institution may set higher interest rates to mitigate the risk they take on from lending you money.
Alternatively, they may ask you to secure your LoC. This means you back your loan with a valuable asset, like a vehicle. If you can’t pay back your LoC, your financial institution may take this asset to recoup the cost of your balance.
Bottom Line: There Are Options
If you’re financial luck runs out, you may face another unexpected emergency expense before you can raise your score. But don’t worry — there’s always a workaround. Find out what your options are. A little bit of research into an LoC may help you tackle your bills fast before they can snowball — no matter what your score is.