Personal Line of Credit

How is a personal line of credit different from a personal loan?

Answer: A personal line of credit is a revolving source of credit, like a credit card.

• You can use as much or as little of the funds as you want at any given time.
• You pay down your balance on a schedule that suits you and then you can use the funds again.
• If you don't carry a balance, you don't pay any interest.

In contrast, a personal loan is an installment loan that gives you a lump sum payment.

• You are given all the funds at once.
• You make equal monthly payments until the loan is paid off in full.
• You get a fixed rate based on your loan term and financial situation.

How is a personal line of credit different from a home equity line of credit?

Answer: A personal line of credit and HELOC work in the same way. The difference is that a HELOC is secured by your home so if you don't repay the funds, you might get a lien on your property.

A personal line of credit isn't secured so you won't lose any assets if you don't make your payments. But keep in mind:

• Regular, timely payments are a key part of establishing and maintaining a good credit score.
• If you miss payments, your credit will drop and it will take some time to repair it.
• Good credit opens doors for home financing and other significant loans.

What can I use my personal line of credit for?

Answer: You can use your credit line for just about anything. Common uses for the funds include:

• Home improvements projects and remodeling
• Debt consolidation of high-interest credit cards and loans
• Family vacations and weddings
• Medical, vision, and dental expenses
• Car repairs and appliance replacement
• Business development

How is interest calculated on a personal line of credit?

Answer: Just like a credit card, interest is calculated on your balance at the end of your monthly cycle.

• You pay interest on the funds you use, not on your entire credit limit.
• If you don't use any funds, you won't pay any interest.
• Your rate is based on your credit score and financial situation.

Can I use a personal line of credit to build my credit score?

Answer: Yes, a personal line of credit gives you the opportunity to show you can borrow and repay funds in a timely manner.

• As you continue to make your payments on time each month, your credit score will improve.
• For best results, you should aim to use less than 30% of your available credit across all your accounts, including your personal line of credit and any credit cards.
• This will boost your debt-to-credit (DTI) ratio, also known as your credit utilization rate.