Can you Have Multiple Lines of Credit?

When it comes to borrowing money in Canada, there are a ton of options available--one of which is a line of credit. Like a credit card, a line of credit is a great way to access money whenever you need it. And depending on your financial needs, you may have questions about whether or not having multiple lines of credit is possible and how many lines you can have.

If this is something that's been on your mind, stick around to learn more about credit lines below.

What is a line of credit?

A line of credit is simply a type of flexible loan that you can apply for with a financial institution or credit union. Similar to how you would use your credit card, you're able to access funds from your line of credit continuously up to your credit limit using an automated teller machine (ATM) for things like unexpected expenses, debt consolidation, tuition for post-secondary education, and more. However, you'll only need to pay interest on the money you borrow rather than the entire sum of money you've been approved for. A line of credit typically has a variable interest rate, meaning that as prime interest rates rise or fall, so will the interest you pay during your monthly billing period.

When it comes to your financial situation and what you need the funds for, there are several types of credit lines, including a personal line of credit, a home equity line of credit, a business line of credit, and a student line of credit. While personal lines, student lines, and business lines of credit are all unsecured lines, a home equity line of credit is a secured line.

What exactly does this mean? A secured line of credit means that the individual applying for the loan must provide collateral in order to be approved. Collateral is a high-value asset, like a home, vehicle, or other items, that may be forfeited to your lender if you run into financial trouble and are unable to make your payments. It ultimately guarantees that your lender will be able to recover the funds they let you borrow.

What is the difference between a line of credit and a loan?

So, personal loan vs. line of credit--what exactly is the difference? One of the main differences between the two is that when you are approved for personal loans, you'll receive your money in one lump sum payment, whereas a line of credit provides you with the flexibility to withdraw money from your line of credit at your convenience, up to your credit limit, and as long as you're making your minimum monthly payment.

Another notable difference between a traditional loan and a line of credit is interest rates. Unlike a line of credit, a loan interest rate is a fixed rate, meaning you'll pay a single rate each month until you pay off the amount of money you borrowed.

Ultimately, if you want a single payment along with consistent interest payments, you should consider a loan. A personal line of credit, on the other hand, provides greater flexibility but also carries some risk because your interest rates can fluctuate.

How many lines of credit can I have?

There really isn't a written rule that states how many lines someone can or can't have. When it comes to how many lines of credit you can have personally, it depends on several factors that are unique to your finances, including the following:

Your income

Having a higher level of income often works favourably for those looking to open new credit lines or credit cards. Financial institutions will also look at your income-to-debt ratio, which takes into account how much credit card debt you have relative to your earned income. In this case, having a higher income-to-debt ratio is better if you want higher credit limits and a better interest rate.

What your spending habits are

The more credit lines you have, the easier it is to get carried away with your spending. It's vital that you look over your plans for spending and saving versus your financial situation to ensure you are able to pay your statement each month. Late payment fees and missing payments can negatively impact your credit scores and will be listed on your credit report.

Your ability to make payments on time

Just like a credit card, you'll need to pay back what you borrow plus interest. It's up to you to decide whether you can manage and pay for multiple lines of credit each month or not.

Your credit history

Your credit history can also play a role in how many lines of credit you have. Before getting lines of credit, or personal loans for that matter, you'll need to be approved by a financial institution beforehand. Having a good credit score and a longer credit history can help you secure lower interest rates and positively influence your credit limit. It will also have a role in how many lines of credit you'll be able to have in the future.

Not sure what your credit score is? Get a free credit score check and build your credit with KOHO so you can reach your short and long-term financial goals.

The benefits of multiple credit lines

Should you choose to use your credit responsibly, there are some benefits to multiple lines of credit that you should be aware of:

It can increase your credit scores

With numerous lines of credit, you'll have more of an available credit altogether, which can lower your credit utilization ratio. By measuring your revolving credit availability, your creditor can see how much credit you're using. In this case, having credit lines with a higher available credit can help lower your credit scores.

Get what you want in life

Assuming that you can make your minimum payments each month and use your money responsibly, having several lines of credit can help you pay for vacations, home renovations, weddings, and other big life events that come with a higher price tag these days.

The disadvantages of multiple lines of credit

Of course, when you borrow money from a lender, there are some potential downsides that you need to be aware of, especially if you're considering numerous lines of credit:

You could dig yourself into debt

If you don't spend your credit responsibly, have numerous late payments, and are behind on your bills, too many lines could put you in serious debt.

Could lower your credit scores

Each time you apply for a new line of credit, the lender will perform a credit check on your account. The more credit reports that are run, the more it will impact your credit scores.

Is it better to have multiple credit cards or multiple lines of credit?

It depends on what your financial goals are. Realistically, having a diverse mix of credit, whether it be a virtual credit card, lines of credit, or other credit types, can help you establish a strong credit history, which can help you long-term if you're ever purchasing a home or need to take out a large loan.

Remember, there are line of credit pros and cons, and the same can be said for credit cards. Using a mix of both responsibly is essential to staying out of debt and making your payments on time.

Will multiple credit lines affect your credit scores

Yes, your lines of credit are directly tied to your credit scores. Making your minimum payments each month and keeping your credit utilization ratio balanced is essential if you want to avoid any negative impact on your credit score.

So what about credit cards? Can your credit card balance affect your credit score? Maintaining an outstanding balance is not essential if you want to improve your overall credit score. If you always have a balance, you're just adding interest to your balance each month. In a perfect scenario, paying off your balance in full is the best option.

How many lines of credit are too many?

It depends on how many lines of credit you're able to use to make payments. If you are confident in your ability to pay each of your lines of credit monthly, then there is nothing wrong with having more than one credit line. On the other hand, having numerous lines of credit can put you in debt if you don't watch your spending habits and are unable to make your payments.

How you can balance your lines of credit: the 30% credit utilization ratio

Knowing how to balance and maintain your lines of credit and credit cards is important. Here's what you should consider doing:

A 30% credit utilization ratio rule states that borrowers should only use 30% of their available credit as lenders view higher utilization ratios as a higher risk. Therefore, by staying under 30% of your credit limit, you'll be able to maintain a healthy credit score and be pre-approved for loans from multiple lenders in the future.

Should I close one of my lines of credit?

If you have a shorter credit history and the credit limit of your credit lines is relatively low, closing your credit can actually hurt your credit score quite significantly. In this case, closing the credit line may not be the right thing to do. You'd be better off keeping it open and not using it unless there is an emergency in the future.

How is interest calculated on a line of credit?

So, how is interest calculated on a line of credit? Most lenders calculate your interest by dividing the annual rate of interest by 365 to get the rate per day. The lending company is then going to add the daily rate to the amount borrowed. The daily cost of interest will be totaled at the end of every month and listed on your statement.

Get a credit line with KOHO

Credit lines are a great way to borrow money in Canada, but they do come with risks that can severely impact your credit score and overall financial health.

At KOHO, we're here to make your financial journey easier. Whether you're looking for a line of credit or a high-interest savings account with overdraft protection coverage, KOHO has financial products and solutions just for you.

Get in touch with us today to see how you can streamline your finances and reach your financial goals!