7 ways to use your line of credit wisely

An open-ended, flexible loan known as a line of credit allows you to borrow money in parts or full up to a specified credit limit at any time. It functions similarly to a credit card and is practical because you can use it as needed and settle the balance when you already have the money. This can help you build a worthy credit profile for yourself while attending to your financial woes. You can only benefit from a personal line of credit if you know how to manage it sensibly.

Here are some pointers on how to make the most of a personal line of credit and enhance your credit profile.

i) Keep a check on your financial discipline.

You may want to avoid using the line of credit if you lack financial discipline because it is essential for you to know your current financial situation like the back of your hand to determine how much you can borrow without negatively impacting your financial health. To use LOC properly, careful planning is necessary to prevent it from being misused and turned into a nightmare of debts.

ii) Have a good cause for using your credit line to borrow money.

An individual's purchasing power is increased by a LOC. The most essential thing is to not blow it all recklessly since it could result in a greater financial situation from which you will find it difficult to recover. Only use a LOC when you truly need the money and have exhausted all other options to secure funding for the expense. Even before you use the money from your LOC, it is crucial for you to make all the calculations about the loan you are about to borrow and know when you will pay it back. So, plan well.

iii) It may be best to use Lines of credit as emergency funds

It makes more sense to set aside the credit limit of a LOC for a rainy day rather than using it to pay for your vacation expenses or the like of it. Access to a personal line of credit can be a prudent measure to confidently handle unforeseen costs and financial catastrophes. In comparison to a credit card, credit lines often offer more flexible choices to transform utilised money into a loan, giving you the freedom to return them conveniently over a longer term. This way, LOC helps you bridge the financial gaps in your monthly expenses and gives you time to recover from a financial hit without being burdened. And it makes it easier for you to get the money when you need it to get by.

iv) Be aware of the terms and restrictions of the available line of credit.

A line of credit's terms and restrictions may vary depending on the lenders. Therefore, read it thoroughly before availing of a LOC. You may want to make sure there are no unstated fees. Some LOCs can be secured lines of credit that need collateral, while others can be non-revolving lines of credit with the specified draw and repayment periods. These differences could make the LOC more expensive in the big scheme of things. Ensure you read along the fine print on the agreement form before signing it.

FlexSalary by Vivifi India Finance Pvt. Ltd. provides unsecured and revolving lines of credit with no prepayment or hidden charges. The repayment methods are simple without fixed EMIs. They offer lines of credit up to two lakhs for salaried and self-employed people based on their repaying abilities.

v) Try not to spend more than 30% of your available credit.

Avoid utilising the entire amount of the line of credit permitted limit as it could lower your credit score when the credit utilisation ratio is high. You are known to be less reliant on credit if you have a low credit usage ratio leaving the credit bureaus with the impression that you have good credit management skills and stick to your spending budget. This ultimately aids in raising your credit score. On the other hand, a high utilisation ratio can indicate to a prospective creditor that you are having trouble handling your money. As a result, your credit scores may drop, and you might not be eligible for a loan.

vi) A line of credit can be more cost-effective than a credit card

A line of credit might be used if you need money to cover an unforeseen expenditure before your next paycheck. It's a more practical option than using a credit card as it can result in interest savings sometimes. Selecting an unsecured and revolving line of credit like FlexSalary over a credit card grants you flexibility in repayments and gives you time to recuperate your financial status cost-effectively while having access to money when you need it.

vii) When there are multiple loans, consolidate debts into one account

The personal credit line can be used to combine several smaller loans into one payment, saving you money on interest. When you avail of a line of credit from the FlexSalary App, it not only provides multiple language support for you to understand clearly but also allows you to track you spends and repayment under a single window on the platform. Streamlining your debts into one account can help you manage your finances better and borrow mindfully only when you need it.

Like any financial product, lines of credit are neither intrinsically good nor negative. It all depends on how they are applied. On the one hand, using credit cards excessively to make purchases can put someone in financial problems just as easily. To that end, always keep in mind to only use your credit line for what is necessary and to pay it off completely before using it again. This will aid in improved debt management and raise your credit score. Avoid using your credit card when you have a personal line of credit available to avoid accruing further debt.