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Should a LOC offer from the bank be accepted or should we only apply when we need it?

Nir

Nir

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Dec 5, 2007
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Hi Everyone,

A bank representative called me to ask if I am interested in a non-secured line of credit following a recent purchase.

Is it a good idea to accept such an offer and apply for a non-secured line of credit (say $30,000) for future use or is it actually not recommended unless I really need it now as it might affect my credit score/history for the next purchase?

I will probably need it a year from now but not yet. Should we accept any such offer from a bank or not necessarily? (Again, the idea is I don`t need it now but who knows if when I do need it the bank will actually offer it to me like they do today. On the other hand if it affects the credit score maybe I should just "take the risk" and not apply now(?)

Thanks,
Neil
 
Hi Neil,


Having a line of credit with zero owing on it should not negatively impact your credit score in a meaningful way (especially since your score is high enough to be approved for the product).

I believe that responsible investors with self control, should have the credit available even it they don`t think they will need it for a while, why not be prepared for any opportunity that might present itself.

As to whether or not this particular offering is a good idea that depends on the terms, especially the interest rate.
 
Thank you Kevin for the quick and valuable response.

Neil
 
It`s always better to have a line of credit in place before you actually need it. That way if a killer deal shows up you can readily access deposit or down payment money without having to scramble.
All the best
Jason
 
it`s good to have money when you need it for sure....but with an un-secured line of credit, remember that the interest rates will be alot higher than a secured line of credit.
Can you not apply for a secured line of credit with your home as collateral?
 
QUOTE (investmart @ Apr 22 2008, 11:21 AM)
Hi Everyone,



A bank representative called me to ask if I am interested in a non-secured line of credit following a recent purchase.



Is it a good idea to accept such an offer and apply for a non-secured line of credit (say $30,000) for future use or is it actually not recommended unless I really need it now as it might affect my credit score/history for the next purchase?



I will probably need it a year from now but not yet. Should we accept any such offer from a bank or not necessarily? (Again, the idea is I don't need it now but who knows if when I do need it the bank will actually offer it to me like they do today. On the other hand if it affects the credit score maybe I should just "take the risk" and not apply now(?)



Thanks,

Neil




shop around !



produce a binder that shows what you own and owe .. i.e. your PNW binder (personal net worth)!



Ask for a MAXIMUM LOC one your existing home or rental properties .. ESPECIALLY if you do not need it !



Once you need it .. guess what .. the bank may not give it to you !



It also takes a while to set up .. say 4-6 weeks .. so YES .. get one .. but not necessarily the one offered in the mail (as it counts as fully utilized on your credit report)



Example: you own a house worth $360,000 with a mortgage of $180,000. Bank would give you a LOC of up to 75% (or even 80%) of $360,000 .. so $270,000-180,000 = $90,000

plus you own a rental property worth $120,000 with a $90,000 mortgage .. i.e. 0 LOC



So, get a MAXIMUM LOC secured by your house and/or possible your rental properties .. and then have it there so you can act QUICKLY when the opportunity arises !



also, maybe read this here: http://myreinspace.com/public_forums1/General_Discussion/61-4391-How_to_get_started_.html



The bounty goes to the one prepared and who can pounce QUICKLY !
 
Thank You Jason, Turtleford63 and especially Thomas for the great advice!
 
The advice from Thomas is bang on! When you need a LOC it is always more difficult to get it. As long as you keep your accounts simple, then it will not effect your score on a long term basis. Do not get multiple accounts, try to keep just one large LOC.
 
Peter, Thomas,

In my case a NON-secured line of credit is the only option. Should I specify an amount or just ask for the maximum LOC I can get as Thomas mentioned?
What is the maximum non-secured line of credit one can get approximately? (i.e. is your net worth? 1/4 of your net worth, other formula used by the bank?)

I understand it is difficult to estimate as it depends on other things like your credit score etc. but assuming everything inlcuding your credit score looks good what is the estimated maximum LOC the bank might accept? For example if my networth is $100,000 - is it reasonable to ask for 25K, 50K or just say maximum LOC?

THANKS.
 
QUOTE (investmart @ May 3 2008, 12:24 PM) Peter, Thomas,

In my case a NON-secured line of credit is the only option. Should I specify an amount or just ask for the maximum LOC I can get as Thomas mentioned?
What is the maximum non-secured line of credit one can get approximately? (i.e. is your net worth? 1/4 of your net worth, other formula used by the bank?)

I understand it is difficult to estimate as it depends on other things like your credit score etc. but assuming everything inlcuding your credit score looks good what is the estimated maximum LOC the bank might accept? For example if my networth is $100,000 - is it reasonable to ask for 25K, 50K or just say maximum LOC?

THANKS.

Ask your banker for the maximum LOC you can qualify for. Like most other debt, your verifiable income will in large part, determine the amount of an LOC you can qualify for. If you can`t verify alot of income, ask your banker what amount you would qualify for.

Also, if your net worth is largely liquid - you may still be able to get a secured LOC. Ask your banker about that - you`d get a lower rate, and a larger amount if you`re willing to secure it.
 
Thanks again Peter,

The amount of knowledge you have on this and related topics is amazing!

Just out of curiosity what is the maximum amount approximately (obviously we can not provide an accurate estimate on behalf of the bank) for a person with a good credit score (>700) who makes $100,000 annual income and has a net worth of $100,000?

Again, just a rough estimate as I don`t even know if it`s around 25K, 50K or 100K(?)

Regards,
Neil
 
QUOTE (investmart @ May 3 2008, 05:51 PM) Thanks again Peter,

...

Just out of curiosity what is the maximum amount approximately (obviously we can not provide an accurate estimate on behalf of the bank) for a person with a good credit score (>700) who makes $100,000 annual income and has a net worth of $100,000?

...
Neil

depends on your other debt !

Banks don`t lend more than 40% TOTAL debt coverage.. so if your income is 100K .. they would lend AT MOST 40K .. MINUS all your other debt: house, credit card, car loan !

a CC is usually unsecured .. and thus 18% + .. EXPENSIVE !

I would NOT recommend using unsecured cash as a down payment ! get real cash from your own bank account, friends, parents, spouses, JV partners .. and give them a piece of the action !
 
Hi Thomas,

The line of credit (non-secured in my case) is not something I need now, just trying to be proactive and get it approved now.. because I totally agree with your statement "Once you need it .. guess what .. the bank may not give it to you !"

Thanks & Regards,
Neil
 
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