“Line of credit” is not a very commonly used term in the UK. Often, we would describe a line of credit as a revolving credit facility or a running account. The terms are interchangeable though, as they all mean the same thing: a line of credit is a lending product that allows you to borrow as much and as often as you need, up to your credit limit and while staying within the terms of the agreement. There are lots of types of lines of credit, some you have probably used before or at least heard of, and when considering the different ways to borrow, it’s important you review all of the options available, not just the ones you currently know of.
Some of the most common lines of credit in the UK include credit cards, overdrafts, and credit lines. They all allow you to get money quickly on a revolving basis, so you have access to credit whenever you need it. While similar in purpose, each line of credit has small differences which means you, as a customer, has a wider range of options to choose from when it comes to borrowing money.
Credit cards are a common way to borrow and are very popular. They allow you to spend your credit limit using a payment card. There are no restrictions on what you can use the credit for and each month you are provided with a statement to show your transactional history. Typically, you have to make a minimum payment each month, though you should aim to repay your balance in full every month to avoid paying interest. The cheapest credit cards are only offered to those with good credit histories, though it is possible to get a credit card if you have a low credit score.
Overdrafts are often offered when you open a current account with a bank or building society. Like a credit card, you have an agreed limit, but unlike a credit card, you would only access your overdraft when you have spent all of the money in your account. Overdrafts do not require separate payment cards, and you repay the overdraft when you bring your account balance back to £0. Overdraft fees are charged differently across different banks.
Credit lines are a newer way to borrow. Instead of a payment card, you have an online account which you can withdraw funds from up to your credit limit into your own bank account. You also have to make a minimum payment each month, but interest is charged daily for your borrowing, so even if you paid in full at the end of the month, you would still have to repay interest, unlike a credit card. Credit lines tend to have higher acceptance rates for people with a poor credit record, and they are available exclusively online so you can apply, repay, and withdraw cash any time of the day.
The best revolving line of credit is one that allows you to manage your money effectively. This may include flexible repayments, speedy application decisions or online account management, for example. Finding the right line of credit means spending a little time comparing products, whether by doing your own research or by using comparison sites. There is so much information online about the different ways to borrow, but you should consider the different features of the credit facilities in line with your personal circumstances as some credit products might not work for some people.
Using credit always needs to be a thought-through decision, even if the repayments are more than affordable. This is because you can’t be sure about your future circumstances. Even though everything may be smooth sailing now, you could face financial difficulty in the future which could make it hard to maintain your credit commitments. Using credit for non-essentials may be tempting but this reduces the amount of credit you have available when an emergency arises. Try saving up in advance or planning a budget if you find you often use credit for non-priority purposes.
When it comes to a line of credit, similar guidelines apply. While you are free to use a line of credit however you would like, it’s worth bearing in mind that irresponsible use of credit could not only make things tricky for you but could ultimately impact your ability to borrow again in the future.
Credit lines and credit cards can be helpful in easing cashflow and spreading the costs of large, planned expenses. Credit cards provide quick access to cash if you already have one, so can also be great in emergency situations. Otherwise, if you don’t already have a line of credit but need cash urgently, then credit line applications are accessible online, 24 hours a day. Overdrafts are really intended to be used as buffers, like a last resort option if you overspend, so that direct debits and standing orders don’t get declined even if you’ve spent your positive balance.
Whichever line of credit you find best suits your circumstances, one of the best ways to manage your credit usage is to regularly check your online accounts or statements so you’re fully aware of how much you owe and what your options might be if you do need money quickly. When possible, repay your line of credit in full each statement period, but in months of cashflow shortfall, make sure you at least pay the minimum payment.
For more helpful information about how to manage your money, different financial products or what we do at Polar Credit, take a look at our Info Hub.