How to Use a Personal Line of Credit

Draw only what you need, not your full limit at once. Pay down more than the minimum each month, since the minimum is often interest-only. And keep your balance under 30% of your limit to protect your credit score.

Used this way, a personal line of credit works best as a flexible backup for planned expenses or emergencies, not a stand in for your regular income.

KOHO Credit Builder

KOHO Credit Builder is designed to help Canadians establish or build their credit history through consistent monthly payments, without relying on a traditional credit card.

With KOHO Credit Builder, you can:

• +74 points average credit score increase seen using our credit building tools*
• Get approved without a hard credit check or minimum deposit
• Pay no interest on the line of credit
• Track your credit score and credit report directly in the KOHO app
• Build your credit history with monthly payments reported to the credit bureaus

How a Line of Credit Works

A line of credit gives you a set borrowing limit that you can draw from whenever you need to, rather than receiving one lump sum like a loan.

You only pay interest on the amount you've actually drawn, not your full limit. As you repay what you've borrowed, that amount becomes available to draw again.

This revolving structure is what makes it flexible, and it's also what makes it easy to misuse if you're not paying attention to your balance.

The Repayment Trap Most People Miss

Many lenders only require an interest-only minimum payment each month.

That means you can pay the minimum every month for years and still owe the exact same amount you started with. You've paid plenty of interest, but the principal never moves.

To actually pay down what you owe, you need to pay more than the minimum on purpose. Treat it like you would a loan with a payoff date in mind, even though your lender won't require that structure.

Good Uses for a Line of Credit

A line of credit tends to work well when you need flexibility more than a fixed structure:

• An emergency buffer, so you're not reaching for a higher-cost option when something unexpected comes up. See how to get emergency money for how this compares to other options.
• Consolidating higher-interest debt, such as paying off a credit card balance at a lower rate and then focusing your payments on one balance instead of several.
• Bridging a temporary gap, like a delay between a known expense and an incoming paycheque or payment.
• A large planned expense, such as a home repair, where you want to repay over time without committing to a fixed loan term.

Uses That Usually Backfire

A line of credit tends to work against you in a few predictable situations:

• Treating your limit as income. Available credit isn't money you've earned; it's money you'll owe back with interest.
• Letting the balance revolve indefinitely. Without a plan to pay down principal, a small draw can turn into a long-term balance that costs you far more than you borrowed.
• Covering everyday spending. If you're regularly relying on it for groceries or bills, that's a sign your budget needs attention, not a bigger credit limit.
• Drawing the full limit at once. This maxes out your utilization immediately and removes the flexibility that made it useful in the first place.

Protecting Your Credit While You Use It

A line of credit is revolving credit, so it's reported to the credit bureaus the same way a credit card is.

Keeping your balance under 30% of your limit protects your credit utilization rate, which is one of the biggest factors in your score after payment history.

Whether your line of credit is secured (backed by an asset, usually at a lower rate) or unsecured (no collateral, usually at a higher rate) doesn't change this. Both get reported the same way, so the usage habits above apply either way.

*Based on users with a starting score of 450 or under and who used all of our credit building tools (i.e. Credit Building, Secured Credit Building) for 12+ months with on time payments. Credit building tools we offer are not a credit repair tool and does not guarantee an improvement in credit score. Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores and missed or late payments may cause credit scores to decrease. Outcomes may vary among users.