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9 Reasons to Pull Out A New Line of Credit

by Melanie Peterson

If you are looking to buy a new home, make a major investment, start a business, or anything in between, you might want to consider getting a line of credit. Here are nine reasons it might be the perfect financial solution for your needs.

9 Reasons to Pull Out A New Line of Credit

1. Credit Is Available

If you are looking to meet a specific financial need and have a good credit history, you might be able to get a credit card in your personal or business name. You may have heard the news – getting this type of credit is now easier than ever. This is both good news and bad news. It’s good news because many banks are aggressively marketing the availability of their products, but it’s bad news because the amount of available credit has increased dramatically over the past few years.

2. You Don’t Have To Put Down Any Money

One very obvious benefit to a line of credit is that you don’t have to spend a significant amount of money. This makes it possible to fund many types of financial needs without sacrificing your savings. If you qualify for a line of credit, you can use the proceeds from the loan at any time, up to the entire draw limit, without making additional payments. Because there is no way to improve your credit score except by using credit responsibly, this is a great way to take advantage of today’s low-interest rates and higher availability without damaging your financial future.

3. You Can Choose Your Own Payment Schedule

A line of credit is a revolving loan, and you won’t have to make regular monthly payments until you’ve spent all of the available credit. This is part of what makes it such an attractive option for many consumers and business owners. Unlike other types of debt, most lines of credit don’t have a specific grace period, so you can generally draw as much as you want as soon as you want. You also don’t need to make payments until your busy season or when your cash flow is favorable and then take some time to pay off the balance when things slow down.

4. There Is No Prepayment Penalty

In general, it is not a good idea to prepay any type of debt because you might do it when you can get the same loan or a better loan from someone else but with a lower interest rate. However, if you qualify for a line of credit and need to pay it off quickly to avoid penalties or other fees, most banks will let you do so without charging you an additional cost. The same thing holds if your balance balloons unexpectedly and your cash flow isn’t sufficient to cover the payments.

5. You Can Start Building Credit History Early

Perhaps the best thing about a line of credit is that you can build a credit history early on before you need it most. The debt you accumulate from your line of credit is added to your personal or business credit history, which will help you qualify for future loans and lines of credit that require even less money upfront.

6. You Can Choose The Best Interest Rate

The interest rates on lines of credit vary widely depending on your account type and package features. Most credit cards are available with some promotional program, making it easy to get a great deal if you are willing to pay an annual fee for your new line of credit or if you want to earn cash back or airline miles. When comparing line of credit rates, consider convenience and flexibility as well as interest rates and fees.

7. You Can Use The Proceeds For Anything You Want

If you qualify for a line of credit, you can use the proceeds for almost anything, as long as it falls within the guidelines of your specific account. Some lines of credit allow you to borrow up to $100,000 or more, but remember that most banks require a deposit or collateral for accounts with a balance above $10,000. Other banks may not require a deposit for accounts as large as $100,000, but they will probably need that you use the proceeds for a specific purpose. Car line of credit requirements might include that you only finance the cost of the vehicle or for an exact make and model. A business line of credit requirements might be for a particular product or service. There are many options available, but it’s important to remember that each bank can have different needs and limits.

8. You Can Simplify Your Finances

One of the great benefits of lines of credit is that they simplify your finances. You don’t have to pay attention to every detail and can instead focus on other important things in your life while leaving the way you pay for items up to the bank and their representatives. Just be sure you understand the terms of your account and that you are comfortable with how it works, so you don’t end up paying interest charges for unnecessary overdraft fees or other fees.

9. You Can Adjust Your Accounts To Meet Your Changing Needs

A line of credit allows you to easily adapt to changes in your business and personal finances without worrying about writing another check or negotiating a new loan. There is no reason to file for bankruptcy or sell off your assets if you have a line of credit. Keep in mind that some banks will let you add or subtract a line of credit payments from your account balance automatically and without a fee, so it is important to check with your bank to learn more about this feature.


It’s important to remember that a line of credit is only as valuable as you make it. If you don’t need one, the lender isn’t going to loan you the money just because it is available. Make sure you can afford to repay the entire balance before applying for a line of credit, and always do your research because there are many different types, and all of them have different rates and fees associated with them.

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