We should use our line of credit responsibly and with care to take advantage of the benefits it offers. It is not readily available for us to take vacations, dining at the finest restaurants in town, or buying cars and expensive appliances. Debts will be on the rise among Canadian households if we do not act wisely and work towards global economic recovery. A line of credit is the most flexible cash management tool that can also be used for home renovations, to pay off or transfer high interest rate credit card balances and to manage cash flow.
There are two types of line of credit; a Secured Line of Credit and an Unsecured Line of Credit. A Secured Line of Credit allows your real estate holdings, or guaranteed investments to secure a higher credit limit. Your credit limit is from $5,000 to as much as 80% of the equity in your home, less than any prior mortgages. An unsecured line of credit is quick and has an easy approval process with an interest given based on your financial standings. A secured line of credit means you must pledge some collateral or security for the loan. If you miss your payment the lender can lay a claim to your collateral. A secured line of credit lets you receive a larger credit limit, lower interest rate and more favorable terms in general than you would from an unsecured line. Lenders are taking less of a risk and based on your credit rating, they let you have more money and charge you less interest. Over the terms of the account, you will save a substantial amount of money in finance charges.
Make sure that you keep a good record of payments and religiously pay your balance when it is due to get your credit rating at a higher score. This is a critical point to understand and the only way to stay on top of your line of credit is to make sure to submit repayments every month. Once your credit line has been established you can have the peace of mind knowing that you have funds for emergencies or unplanned expenses.