When you are approved for credit lines, you are approved “up to” a certain amount. That number is your available credit from that company. Finding your overall available credit is as simple as adding all your limits on all your accounts. Knowing what your available credit and what the balance is on every card account is important because you want to always remain around the 30% credit utilization rate. There are some vehicles that are better than others when you are trying to build your score. Credit lines are usually considered a superior vehicle for managing available credit/debt ratio.
Keeping the Ratio Balanced
Experts agree to ensure that your score stays great or to lift it up a bit, you should manage your debt to available ratio correctly. In all cases of debt the ideal level of usage is below 30% although some experts recommend staying as low as 10% if you are trying to raise your score. Credit lines that have a low balance in relation to the limit will boost up your score nicely. One of the key elements to utilizing your available credit correctly for enhancing your score is to use it minimally and never close out an account just because you have paid it down.
The Benefits of Credit Lines
Credit lines and credit cards are a great option because they usually offer a high limit but, unlike loans, you do not “have to” tap into the entire amount all at once. A credit line lets you take the money as you need it and:
- You do not have to make payments on what you do not use
- You can have cash on hand when you need it
- It reflects well on your credit report
- It is a revolving credit line
Unlike a loan where the terms are set in stone, a credit line offers you more fluid access to money. You may have the same credit limit on a loan or a line but in the case of a loan you have to take a lump sum payment, which of course shows as 100% credit utilization. A credit line allows you to spend what you need when you need it.
With a credit line, it is like having “cash on hand.” A credit line can be a great solution for showing a good deal of available credit on your credit report and help you to meet cash needs. Credit lines are also a benefit because they are a form of revolving credit, which means you pay it down and your available credit limit raises up.