Recycling is one of the habits I am able to develop because I moved to Canada. I love to fill up the blue bin with flyers I hardly read and newspaper I quickly scan to look for vegetarian recipe.
A few weeks ago, I almost thought of throwing a letter from TD Canada Trust. It’s the usual promotion I typically get from banks only this time, it makes sense to consider the offer.
Should I accept the pre-approved line of credit of TD Canada Trust?
I’ve been pondering of applying for a line of credit as part of the grand scheme: buying a house.
NO. I don’t plan of using the line of credit as downpayment for the house but I do want to have access to a loan with low interest rate whenever I want for the just in case scenario.
I continuously build my credit history/score by paying the credit card balance every month.
And over the years, I carefully choose the right credit card (most recent is the Rogers Platinum Mastercard). It’s about time to try other forms of borrowing, as it turns out variety can improve my credit score.
What is Line of Credit
As of this moment my credit card limit ($12,500) is similar to my line of credit limit. Both forms of loan allow the borrowers to spend up to the credit limit but that’s where the similarity ends.
I’ll let Investopedia define line of credit.
Line of credit is a limited/specified amount of money that an individual can access as needed and then repay immediately or over a pre-specified period of time. As a loan, a line of credit will charge interest as soon as money is borrowed, and borrowers must be approved by the bank.
What I do have, which you’ll most likely have if you apply for a line of credit, is an unsecured line of credit. It is a credit not tied to the equity in your home or other valuable property.
Advantage of Line of Credit
I used to have phobia with debt just as I dread crossing a high bridge. Imagine falling from the top or getting stuck. Not a pretty metaphor isn’t it?
Gradual exposure is used in phobia therapy that I’ve seen on a British documentary. (Why do they scream with elegance?) I love to talk about what I’ve been watching lately but it’s time to introduce you to gradual exposure to debt or loan whether you have a phobia for it or not.
Shall we start with knowing the benefits of having a line of credit at your disposal. (Pretend you’re hearing a British accent.)
1. Money at your disposal. I have to say it again and emphasize that line of credit is not free money. It comes with interest just like a credit card. (I vow to pay the balance every month. Mortgage needs a different approach.)
2. No hard credit check. I asked the staff of TD Canada Trust and I’ve been told that I wouldn’t have a hard credit check on my file (in the credit bureau) once I accepted the pre-approved line of credit. MoneyWise explains well the importance of credit inquiry.
Usually when you apply for a loan or request a credit increase, your bank will send an inquiry to the credit bureau to get your current credit score. This inquiry will show up on your credit report indicating that you applied for additional credit. Whenever a credit inquiry is recorded, this will cause your score to fall slightly since applying for a lot of new credit can indicate someone who is having financial difficulties.
That seems unfair. Not everyone who accept a pre-approved line of credit or credit increase is in the depths of debt. And even if they are, there’s a way to get out of debt. OK why am I suddenly annoyed. Breathe in. Breathe out. Relax.
3. Better management of credit utilization. This I found out a bit late after having half a dozen of credit cards. Use only 10-20% of the available credit. So that’s why I applied for a line of credit. If the emergency happened in the future, I can borrow up 20% of the available credit. I can’t do that with a credit card with 19.99% interest. No dice.
Whenever I am afraid to cross a bridge, I imagine what’s on the other side. And the advantages of having a line of credit is a picturesque view that is worth taking the risk.
But what I love about embarking in another level of borrowing is that, I’m starting to befriend debt. Now I’m wondering why I was so afraid of mortgage and any debt greater than four digits.
If you are feeling courageous and knowledgeable (must go hand in hand), you can take the next steps.
Why I Accepted the Pre-Approved Line of Credit
I dialed the toll-free number and declared my interest in the TD Canada Trust line of credit. Once I asked all the questions (to show that I’ve done my research), I accepted the offer.
It’s clear that I need it for a bigger unforeseen event as the result of goal to buy a house. Having a tolerable fear of debt helps me to purposely borrow from whatever type of loan.
Who wants to sleepwalk and swipe the credit card until it is maxed out?
I’m wide awake (with a clear mind, I hope) every time I make a purchase which reminds me to also pay attention to the terms and conditions (sent on email) that I should finish reading.
For anyone interested in applying for a TD Canada Trust line of credit, it will take 24 hours before seeing the line of credit account online after the not-so-lengthy conversation with the staff.
I had to say no to the unnecessary (is it?) credit card limit increase and other insurance offers.
Fast Forward: The Lure of Lower Rate
After using the line of credit several times as if it’s a credit card, that is, I pay the balance every month, I received another offer from TD. I can get a lower interest rate (4.9%) with the current prime rate for a year.
What’s the catch? I’ll have to pay a fixed amount every month, that will include the debt plus the payment of interest. That’s not my style, so I happily declined the offer or did nothing even if I still get an occasional same offer. I’m still the same.
If you want to understand how interest rate works on line of credit, head on to Freedom 35 Blog. He did a great job explaining this topic and I’m sure you’ll agree.
In the future, I may ask or accept a credit limit increase. If I am bold enough, I may even negotiate the rate. That’s a lot of possibilities. (Update: I was offered a credit limit increase (not much) on my Rogers Platinum Mastercard and I accepted it. No big deal. Now time to (shop?) be more responsible and vigilant.
My point is use any form of credit to your advantage. Become a responsible borrower. What holding us back is the fear of mishandling the entrusted credit to us.
Do you doubt your ability to manage your personal finance? Well, educate yourself. (Read books and my blog. Shameless plugging.) And practice what you’ve learned.
OK. I’m done here. It’s time to check the mail and sort what should go into the recycle bin. It may take a long time to see any bank offers that may catch my interest.
Have you accepted a pre-approved line of credit in the past? How did you manage it?