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7 Reasons to Take out a Line of Credit



Echo Credit helps you decide if taking out a personal line of credit is good for you. Fill out our online application, and our team will be happy to help you in any way we can.

When people think about borrowing money, most of the time they think about credit cards, installment loans, or even borrowing directly from friends and family. But there’s another option that’s often overlooked: the personal line of credit. 

If you need to make more than one big purchase, or you’re funding an emergency that your bank won’t typically underwrite a loan for, then a line of credit might be right for you. But before you make that decision, let’s break down what a line of credit is and the big reasons why you might need one.   

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What Is a Line of Credit? 

A line of credit is a type of loan that gives you access to a limited amount of funds, which you can use for pretty much anything you want. As long as you repay what you borrow, you can borrow it again. 

A line of credit works like a credit card: you’re given a borrowing limit, which you can’t exceed, and depending on your lender, you’ll pay what you borrow plus any interest. The big difference between a line of credit and a credit card is in the purchasing power: credit cards help you make everyday purchases, like groceries, whereas a line of credit helps you make bigger purchases, like fixing a leak in your house, paying for an emergency visit to the hospital, or even funding a wedding. 

Why Take One Out? 

A line of credit can be a great way to back up your income or help you get back on your feet after an emergency. Here are seven reasons you could consider taking one out:

1. You face an emergency

Your roof springs a leak. The starter on your car goes out. You’re forced to call an ambulance for a loved one. Emergencies happen every day, and, unfortunately, most of us don’t have the funds to cover them. In fact, according to a recent survey, around 69% of Americans can’t cover a $1,000 emergency, which, considering that 25% of Americans don’t have any emergency funds, means most of us are strapped for cash when we need it most. 

Instead of wondering how you’ll pay the bills, you’ll have a backup plan to pay for your emergencies—when they happen. You’ll plug up financial holes, giving you the peace-of-mind you need to focus on the emergency at hand.

2. You lose your job

Nothing is more stressful than losing a source—perhaps the source—of income in your household. After all, you have bills to pay, groceries to buy, not to mention other debts, like medical bills, to handle. In this case, a line of credit acts as a safety net. By helping you stay afloat, you have a clear head to plan what to do next. 

3. You unexpectedly move

Speaking of jobs, you may find a new opportunity, one that pays even more than what you were getting. The only problem—it’s far away. And, knowing how much moving can cost, you’re not sure if you can fund the relocation. 

This is where a line of credit works at its best: you know you’ll pay back the expenses once you get the new job rolling, and the extra cash from a line of credit is just what you need to cover moving costs now. 

4. You don’t want to put up collateral

Another common reason is that you don’t want to borrow against your assets, like your home. HELOCs, or home equity lines of credit, can also help you in emergencies, but there’s always the risk of foreclosure if you can’t pay back what you owe. 

5. You have an irregular income

Not everyone works a 9 to 5 job with a regular paycheck. Contractors, freelancers, and those who are self-employed often have inconsistent pay schedules, which don’t always align with their bills. With a line of credit, you can bring more stability to your finances, helping you cover bills until the money flows in. 

6. You want to improve your credit score

Let’s say you have an emergency fund, your job is stable, and you get a regular paycheck. Why, then, would you take out a line of credit?

Simple. You want to boost your credit score. Having a revolving account can help you diversify your credit (10% of your credit score), and as long as you pay your bills on time, you can greatly improve your payment history (35%). 

7. You need to pay taxes—now

Tax bills can be stressful, especially when they’re unexpected. And, given that penalties on unpaid taxes can be steep (5% of your unpaid taxes every month, up to 25%), you definitely want to take care of a tax bill as soon as it comes. When you have a line of credit, you can get the cash you need to pay them, saving you money in the long run. 

How to Get a Line of Credit Today

If you think a line of credit sounds right for you, we can help. Fill out our online application, and our team will be happy to help you  in any way we can. 

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