How to Use a Line of Credit Successfully

A line of credit works like a credit card. The bank or credit union may charge an annual fee, but other than that there are no costs associated with the line of credit until you access it. Credit limits can range from a few thousand dollars for a unsecured signature line of credit to more than $50,000 for a home equity line of credit (HELOC). Unsecured lines of credit do not require collateral. Your house provides the collateral for a home equity line.

Instructions

1

Monitor your credit limit. Ask the bank to reduce your credit line if you feel you have too much available credit. Voluntarily lowering your credit limit could keep you from overspending.

2

Use the credit line for emergencies and major expenses. The Federal Trade Commission reports that missing payments on a HELOC could lead to foreclosure -- a good reason to avoid using a line of credit for frivolous everyday expenses. Similar caution should be taken while using unsecured lines of credit. Using an unsecured line of credit as if it were cash could put you in a bind if you later need the credit line for emergency expenses like a new roof or medical bills.

3

Keep your balance low. Make more than the minimum payment whenever possible, and always pay on time. Make biweekly payments -- instead of monthly -- to accelerate paying down the debt. Ideally, you should use no more than 30 percent of your available credit, according to CNN.