A personal line of credit can be an important financial tool, but it’s typically only available to people with overall healthy finances, including a high credit score. If you want to be able to qualify for a personal line of credit sometime in the future, these tips can help get you there.
Build Your Credit History
Credit history, or the type and longevity of your history as a borrower, can be an important part of building credibility in the eyes of a potential lender. If you’re brand-new to the world of credit, you probably won’t qualify for a personal line of credit just yet. Instead, focus on things like credit-builder loans and secured credit cards and gradually build up to a personal line of credit.
Pay Bills on Time
On-time bill payment can be one of the simplest ways to maintain your credit score, which will in turn help you qualify for a personal line of credit — if you play the rest of your cards right. Live within your means and be diligent about paying your bills before the due date.
Pay Off Credit Card Debt
The credit-to-debt ratio is a big part of credit scores. This means that lenders want to see that you have a lot of available credit, but you aren’t using too much of it. Paying off high credit card balances will help you improve your score.
Don’t Close Credit Cards
The flip side to the credit-to-debt ratio is that you shouldn’t close out credit cards once you’ve paid them off. This may seem counterintuitive, but remember that the point of the credit-to-debt ratio is to have much more credit available than you’re actually using.
Don’t Apply for Too Many Credit Cards
Trying to improve your credit-to-debt ratio by opening a bunch of new credit cards isn’t a good idea either. Too much borrowing can make you look irresponsible to lenders.
Wait for Credit Problems to Diminish
Having past credit problems, ranging from a couple of late loan payments to a declaration of bankruptcy, can have a big impact on your credit score. However, the severity of this impact lessens over time, and these issues may eventually disappear from your report altogether. If you’ve recently had big credit problems, wait a few years before trying to open a personal line of credit.
Regularly Check Your Credit Report and Score
Make sure that your credit history is accurate and actively improving by regularly monitoring your credit score and getting your free annual credit report. Things like identity theft can cause your score to take a dramatic and out-of-the-blue turn for the worse.
Find the Right Lender
Different lenders may have different credit and income requirements for personal lines of credit. Whether you’re looking for a bank or credit union line of credit, see if you can talk to a loan officer or someone else in the know to find out what their general minimum credit score is. Be aware, though, that you won’t formally know whether you’re approved until you actually apply.
Apply All at Once
If you’re going to apply to multiple different institutions for a personal line of credit, don’t stagger your applications out over the course of weeks or months. If you apply all on the same day, this will do less damage to your credit score because it will be interpreted as a single credit request rather than multiple different ones for different things.
Report All Income
The more income you have, the better you’ll appear to prospective lenders. Don’t leave any income out, even if it’s not the main way you make a living. A side hustle selling rare baseball caps still counts.
