A line of credit (LOC) offers flexible borrowing, allowing you to borrow up to a certain credit limit without being required to use the entire amount. Similar to credit cards, you can borrow money as needed and only pay interest on the amount you use. Lines of credit in Canada are often used for managing cash flow, unexpected expenses, or ongoing projects.
Types of Lines of Credit:
- Personal Lines of Credit: These are unsecured, meaning you don’t need to put up collateral, and they are generally used for smaller, short-term borrowing needs.
- Home Equity Lines of Credit (HELOCs): These are secured by the equity in your home, which typically means lower interest rates. HELOCs are often used for larger expenses such as home renovations or education costs.
How Lines of Credit Affect Your Credit Score:
Since you only pay interest on what you borrow, a line of credit can have a less severe impact on your credit score than a personal loan or credit card. However, using a large portion of your available credit can hurt your credit score. It’s important to manage your spending and pay off your balance regularly to maintain a positive impact on your score.
