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What’s the best way to use a credit line?

Having access to credit can massively improve your ability to manage money. Instead of missing important bills that don’t line up with your payday on occasion, you can be confident that you can meet all of your financial commitments on time, just by borrowing a small amount of cash when you need to. While you should never rely on credit as a secondary source of income, occasional use for sensible purposes is probably going to be a responsible way to borrow.

When it comes to the credit line, as a new way to borrow, getting the most out of it can be unclear. While it's best to reserve available credit for emergency expenses, as a credit line has a lower rate of interest than a payday loan, for example, you can also use it to support other payments and more general cashflow when you need to.

Definition of a credit line

In brief, a cash credit line is a running account credit facility which allows you to withdraw funds up to your credit limit whenever you want to. The funds are deposited directly into your bank account, and your minimum payment is collected each month from a registered debit card. Instead of repaying the full balance at the end of your statement period, you only need to pay the minimum payment, which at Polar Credit consists of any transactions fees and the interest accrued during your statement period, as well as the higher of £10 or 5% of the principal amount borrowed.

Best ways to use your credit line

Tips explained:

Always pay more than the minimum payment where possible

While you are only required to make a minimum payment each month (as is the same with most credit cards), only paying the minimum payment will take you much longer to repay the full balance. As interest accrues on the outstanding principal, it also means you’ll end up repaying more. Even if you can’t afford to repay the full balance some months, try to make additional repayments where possible to reduce the total amount that you owe. This will also increase the credit available to withdraw in case of emergency or unexpected payments.

Only borrow the amount that you need

Interest is charged on the amount that you withdraw, so if you only need to borrow £100 to meet a payment, don’t withdraw more than this. Interest is calculated as a percentage, and so the larger the amount that you withdraw, the more you will have to repay at the end of your statement period.

Borrow at the time you need the money, not too far in advance

Withdrawn funds are transferred to your bank account instantly, even on weekends and bank holidays, so there’s no need to withdraw the money you need days or even a week in advance. You are only charged interest on the amount you have withdrawn over the time it is withdrawn for, so the less time you borrow from your credit line, the less interest you will have to repay.

Check your statement end date and minimum payment date if you’re unsure

Not making your repayments on time can lead to default fees and missed payments being recorded on your credit file. It’s important you actively try to improve your credit file where you can because it has a big influence on your future applications for credit. Checking when your payments are due can help to ensure you stay on track and meet all of your repayments on time. If your payday changes at work or you change jobs, get in touch with your creditors as soon as possible so they can amend your repayment date. If you are paid four-weekly and your minimum payment date is on a set date each month, it can be trickier to ensure you have the funds available to meet your financial commitments. It can be a good idea to open a separate bank account to allocate funds when you get paid, so you know you have the money to meet your repayments on time.

Check your card details are up to date

Most lenders will collect your repayments from a registered debit card or by direct debit using your bank account details. If you get a new card or switch bank accounts, you may need to update the details on your account so that your lender can continue to collect the repayments automatically. It is always your responsibility to ensure your repayments are made on time, and it’s unlikely lenders will waive late fees or missed payment markers on your credit file because you forgot to change your payment details.

Try to reserve your credit for emergency or urgent purposes – such as car repairs, replacing broken furniture or even down payments on new rented property – but if you do want to use credit for less essential reasons, then try to use the lowest interest rate credit available, and only borrow the exact amount you need. There’s no point taking out a £10,000 bank loan at a low APR if you only need to borrow £200.

Whatever type of credit you use, the key to borrowing responsibly is to make considered decisions. Everyone has different financial circumstances so there is no one rule fits all when it comes to using credit, but the tips in the list above can at least help you avoid missed payment fees and unnecessary interest. Finding a budget and money management plan that works for you is important and there’s no shame in trying a few different methods before finding one that makes handling your finances easier and less stressful.

More Information

Sustainable Credit

What are credit lines used for?

Who would benefit from a credit line?

Are minimum payments costing you money?

Check out our other great content in our Info Hub, with articles about the different types of credit products, money management tips and help with saving money!