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Importance of Multiple Lines of Credit

When it comes to loans, they manage to exist as both a complex and simple element that many adults end up needing to understand at some point in their lives. They are simple in that they all seem to broadly follow the same rules and regulations, but each of them has little details that turn “understanding all loans” into a complex thing.

However, one thing that is pretty uniform across all loans is that to be considered for a loan, the lending office will look at your credit score. Your credit score is a culmination of all your credit history, from how many loans you have, how long you’ve had them, how good you are about repaying them on time and in full, etc.

One of the ways to ensure that you have a good credit score is to ensure that you have multiple lines of credit that are all in good standing.

But what does that mean?

Multiple Lines of Credit

A line of credit is a type of extremely flexible loan that you can enter into with a financial institution such as a bank. This credit line will give you access to a limited amount of funds (like a credit card does), and then you’ll be able to repay whatever amount you have used immediately or over a pre-agreed upon timeframe.

As with a credit card, lines of credit will also charge you interest as soon as you begin to use them, so keep that in mind. Many of them even use variable APR, so it can be hard to gauge how much you’ll truly be spending, which might be cause for some anxiety.

However, lines of credit tend to be considered an extremely low-risk solution for any money problems you might have. Lines of credit allow borrowers to have access to a specific amount of money (that they will need to repay if they spend) whenever they might need it.

Lines of Credit in Business

Lines of credit can also be used in and for businesses! It doesn’t have to only be for personal use, and, in truth, lines of credit tend to be used more frequently by businesses than by individuals.

Indeed, businesses have been using lines of credit to their benefit for many years. These lines of credit can be used to help them cover overhead costs in a pinch or to apply for specific investment situations.

Only you can determine if having access to fast money at all times (that you’ll need to pay back) is a good idea for you and your business needs. Keep in mind that, if you default on any lines of credit, it can have a very large negative impact on your entire credit score.

Overall, having a mix of credit lines tends to account for about 10% of your entire FICO score, which is not an insignificant amount!

Weigh the pros and cons, do additional research, and see if you’re in a place where opening a new line of credit is a feasible option. If it is, and if you can manage to pay for whatever you spend on it, it’s a great idea with many benefits.


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