When should I open a “Line of credit” at my bank?
With the information you have given, I would say never. Remember the banker is a salesman, and the line of credit is the product. If you don't need to borrow the money for something specific, then you don't need the line of credit in the first place. Even if you did need something I would tell you to save up and pay cash for it. On the tax advantage: There is none, in the US you can deduct your mortgage interest on your taxes but it's not a tax credit it's a tax deductions. Let me explain further: You spend $10,000 on mortgage interest, and you're in the 25% tax bracket. You send the bank $10,000 in return you get at tax savings of $2500. You are still in the hole $7500 You would have been better off not taking out the loan in the first place. On the Emergency Fund: You should have 3 - 6 months of expenses in cash, like a money market account.  This money isn't for investing, it's like insurance, and you don't make money on insurance. The last thing you want to do is have to go into debt right in the middle of an emergency. Say you lost your job, the last thing you would want to do is borrow money, right at the time you have no income to pay it back. The bank is under no obligation to maintain you credit limit and can without notice reduce it, they can in most cases call the loan balance due in full with little or no notice as well. Both of those are likely scenarios if the bank were to become aware of the fact that you were unemployed. There are two basic types of lines of credit typically offered at a retail bank: Overdraft line of credit is essentially a revolving personal loan that you can draw upon as needed or automatically draw on when you overdraw on your checking account. Typically with a commercial bank there is a fee to use the automatic overdraft in addition to interest. Some credit unions don't charge a fee. Interest is typically computed using average daily balance. A Home equity line of credit is a revolving loan that is secured against your home. Interest on home-improvement related expenses is deductible. Since the bank gets a lien on your home, the rates are low. Sometimes you can even get debit cards that will hit the line. I think these are a good idea if: A line of credit is a poor substitute for an emergency fund.   Banks typically have a clause that allows them to stop further withdrawals from your line of credit if there is a change of vaguely defined type.   For example, if you lose your job they can stop you from making withdrawals from your line-of-credit. "The only really good reason to open a line of credit is that you want to buy something that you don't have money for. That's got its own risks - see plenty of other places to see warnings about not borrowing too much. The only other reason is that you might want to use a line of credit as your emergency fund. The usual way of doing this is to keep the money in an easily acccessible savings account - but such accounts usually pay rather now interest, and there is an argument for instead investing your emergency money in a higher-interest but less-accessible fund and using a line of credit to tide you over until you can extract the money. I'm worried about the comment that you can ""deduct my interest on my tax returns"". That is usually only possible if you are borrowing money to invest. It sounds as if your banker is going to persuade you to not only open a line of credit, but then invest that money in something. Be aware that this kind of 'leveraging' is much higher risk than investing money you already own." I have a line of credit that I have attached to my checking account in case of an overdraft.   Since I haven't over drafted my checking account in 4 years, I typically borrow the minimum $5 from the line of credit and then pay it back the next day.   This usually costs me a couple of cents and I have to do it twice a year, but it keeps the account active and they don't close it down.
Typically in GnuCash, account balances that exist at the beginning of the time you're keeping records for are balanced by entries in an Equity account “Equity:Opening Balances”, which is part of the default set of accounts created for you. This account is really just a placeholder so that everything balances, and that's perfectly normal. So, just enter “Equity:Opening Balances” as the “other entry” when entering the first, opening balance, transaction in your Liability account for the loan. If you have not already created the liability account, then just use the “Opening Balance” tab of the New Account window to enter the initial balance as you create the account.  (Disclaimer: I have no formal knowledge of accounting; I just use GnuCash and read the users' mailing list.) An emergency fund is your money, sitting in a bank, that you can use for emergency purposes. A line of credit is somebody else's money, that they've provisionally promised to let you borrow.  But they can change their mind at any time. So My question is. Is my credit score going to be hit?  Yes it will affect your credit.  Not as much as missing payments on the debt, which remains even if the credit line is closed, and not as much as missing payments on other bills...   If so what can I do about it?  Not very much.  Nothing worth the time it would take.  Like you mentioned, reopening the account or opening another would likely require a credit check and the inquiry will add another negative factor.   In this situation, consider the impact on your credit as fact and the best way to correct it is to move forward and pay all your bills on time.  This is the number one key to improving credit score.   So, right now, the key task is finding a new job. This will enable you to make all payments on time.  If you pay on time and do not overspend, your credit score will be fine. Can I contact the creditors to appeal the decision and get them to not affect my score at the very least? I know they won't restore the account without another credit check). Is there anything that can be done directly with the credit score companies? Depending on how they characterize the closing of the account, it may be mostly a neutral event that has a negative impact than a negative event.  By negative events, I'm referring to bankruptcy, charge offs, and collections.  So the best way to recover is to keep credit utilization below 30% and pay all your bills and debt payments on time. (You seem to be asking how to replace this line of credit to help you through your unemployment.) As for the missing credit line and your current finances, you have to find a way forward.  Opening new credit account while you're not employed is going to be very difficult, if not impossible.  You might find yourself in a situation where you need to take whatever part time gig you can find in order to make ends meet until your job search is complete.  Grocery store, fast food, wait staff, delivery driver, etc. And once you get past this period of unemployment, you'll need to catch up on all bills, then you'll want to build your emergency fund.  You don't mention one, but eating, paying rent/mortgage, keeping current on bills, and paying debt payments are the reasons behind the emergency fund, and the reason you need it in a liquid account.   Source:  I'm a veteran of decades of bad choices when it comes to money, of being unemployed for periods of time, of overusing credit cards, and generally being irresponsible with my income and savings.  I've done all those things and am now paying the price.  In order to rebuild my credit, and provide for my retirement, I'm having to work very hard to save.  My focus being financial health, not credit score, I've brought my bottom line from approximately 25k in the red up to about 5k in the red.  The first step was getting my payments under control.   I have also been watching my credit score.  Two years of on time mortgage payments, gradual growth of score.  Paid off student loans, uptick in score.  Opened new credit card with 0% intro rate to consolidate a couple of store line of credit accounts.  Transferred those balances.  Big uptick.  Next month when utilization on that card hits 90%, downtick that took back a year's worth of gains.  However, financially, I'm not losing 50-100 a month to interest. TLDR; At certain times, you have to ignore the credit score and focus on the important things.  This is one of those times for you.  Find a job.  Get back on your feet.  Then look into living debt free, or working to achieve financial independence. "The short answer to all of this is that it depends on the loan and on the collections agency. It's an ""interesting"" time to be a collections agency right now. On the one hand, people are defaulting on debts, and those creditors want to be paid and are beating down the agencies' doors. On the other hand, if you can't pay you can't pay, and the threat of collections action is not much of a motivation when you're already 90 days out, and so collections agencies are having to consult crystal balls and tea leaves to try to determine which debts they're likely to collect if they buy. Many collections agencies have begun subscribing to the ""you catch more flies with honey than vinegar"" philosophy; ""we know it may be very difficult for you right now, so we'll make you a deal to settle the debt for 80% of face value, and you'll never hear from us again"". Other agencies continue to live by the threat model; ""we're heartless and cruel and we don't care that it's tough; we own you and you will pay us everything we ask for or we will make your life hell every way we can"".  There are advantages, and a certain synergy, to both approaches. You really do get more success by making a deal, so the agency that is willing to work with the debtor and offer them a good deal is going to be more likely to collect. However, that quickly becomes an incentive to not pay; ""Yeah, they sent me this outrageous bill for my sprained ankle, so I just ignored it and let 'em sweat, and ended up paying half what they billed me"". Sprinkle in just a few cases of ""Yeah, I couldn't pay my cell phone bill so I just let them cut it off, but the collections agency started calling and mailing me every day and I had to pay twice what I owed in the first place to make it stop"", which filters through the collective psyche of the masses, and all of a sudden if and when they do offer a deal on a debt you fell behind on, you jump on it. Now, to the question at the end of your post. It's always better for your credit to pay than to not pay. An open collections account on your credit score will always be a bigger ding than a closed one. But, open or closed, that collections activity remains part of your history unless the collections agency agrees to retract it. Even then, you may have to go around to the big three credit bureaus and get the account removed, using documentation which the agency must provide stating something to the effect of ""we agree that this never happened"". If the agency refuses to remove this black mark, how black it will be depends on the terms by which the account was settled. The reporting agencies will be told the face value of the debt that was sent to collections, and they will be told the amount paid to settle it. If the debt was settled for face value, that tells people reading your report that, well, you were very late and only paid under duress, but at least you did make good on the debt in full. If you settle for less than the face value, that says something different entirely; not only could you not pay the original creditor, you had to negotiate to reduce the amount to pay the debt collector. That makes extending you credit very risky; not only are you a proven risk for being late to pay, not only are you a proven risk for them having to write off the debt, but if and when they sell it to a collections agency, the agency will see that a past debt was settled for less than face value and assume they'll get the same treatment, and so will offer less to buy the debt. Both of those cases are still better than an open collection; that says to someone considering loaning you money that not only will you default, not only will they have to write it off, not only will the collections agency make less profit... the collections agency is unlikely to see ANYTHING from this bad debt and may not even agree to buy it." While you're asking about a particular bank, I'll give my opinion of this in general.  I think a $12,000 household income is pretty low to be given credit. The risk to the bank is certainly higher than if the income were at that $35,000 level. They can use this to differentiate what they offer for perks, and if they ever collateralize the debt of these cards, it's a clearly defined demographic. "Your use of the term ""loan"" is confusing, what you're proposing is to open a new card and take advantage of the 0% APR by carrying a balance.  The effects to your credit history / score will be the following:" If the bank wants to close your account, they will do just that. Having a small ongoing balance isn't going to prompt them to keep it open.  Typically, the risk is for a card with zero usage to be closed, as it's a cost to them to keep the account open, and it has no revenue. To avoid this, it's a good idea to use that card or cards for a regular purchase, say, gasoline. A non-impulse buy, and just pay in full to avoid interest. There's no need to keep a balance accruing interest.  Keep in mind - A bill contains a month of charges. The bill for December is issued on the 31st, but due January 25th or so. When you pay it in full you do not have zero balance, you have the charges from January. This accomplishes your goal, will no interest. "I would aim for 10% or less, because I believe 30% is where you start to get dinged on your credit score.  No one will know for sure, as there are many models, but 30% is brought up by radio host Clark Howard pretty often. Close annual fee cards or one store only cards.  Normally I would suggest ""leap-frogging"" your credit cards so that as you open a new one with no fees, you then close another that does have fees.  However I do not think opening lines of credit with an upcoming home purchase is a good idea.  It will reflect negatively that you are opening credit all over then place. I would shoot for such a low percent to make sure that the time it takes for reporting to happen will happen.  Also, as you gear up to buy a house, make sure your credit report is clean looking with all of these balances and cards you are considering closing." Check with your bank, usually a statement is either at the same day of month (e.g.: every 15th of the month), or every 30 days (e.g: March 15th, April 14th, May 14th, so forth). From my experience, most credit cards use the same day of month strategy. Keep in mind that if the day is not a business day (e.g.: weekend), the statement is closed either the previous or the next business day. I've had all my account with the same bank for all my life. Generally, the disadvantage is that if I want some kind of product like a credit extension or a mortgage, I have the one bank to go to and if they don't want to help me I'm out of luck. However, occasionally there are also perks like the bank spontaneously offering you increased credit or even a whole line of credit. They can do this because they have your whole history and trust you. Another reason is that the amount of unused credit you have is a positive factor on your credit score.  It's generally easier to open several different accounts for $X dollars each with different banks than to get your current bank to raise your limit severalfold in a single go.  Your current bank has to worry about why you suddenly are asking for a large additional amount of credit; while other banks will be willing to offer you smaller amounts of credit in the hope that you transfer your business from your current bank to them. "There are two options (according to Wells Fargo). You can either apply for a Business/Commercial Equity Loan or a Line of Credit. A loan is what it sounds like - they give you a lump sum of money for you to use and you have to pay it in monthly installments. A line of credit is like a credit card, you have money that you can borrow (up to a certain amount) and you have to make monthly payments. The process can differ for different business, they probably look at what your real estate is worth, how much money you are generating from it, etc. I am not recommending or endorsing Wells Fargo, other major banks offer the same types of products, Wells Fargo just happened to appear first when I searched for ""business line of credit""." I guess we opt in when we take out credit, or if you sign a lease or anything like that. While credit reporting is the backbone of consumer finance, im not sure exactly how it works, and this may not be the right sub. r/personalfinance may be better. If you get a good answer elsewhere I would be much obliged if you posted it back here. let's all support the latest post added to www.securedcreditcardsonline.com! it offers excellent tips college students can use to find, qualify for and eventually get suitable lines of credit they can use for managing their day-to-day expenses. hope you will read it and share it with all your friends! My first thought is get a Capital One Secured Card. Use it for small things and pay it all off when you get paid. It will build your credit and after six months of solid use your credit limit can go up and you can be eligible for a better non-secured card (not that you need to get one). It's great for starting or rebuilding credit.