Personal Finance

Info on Credit Utilization: Loan vs Line of Credit

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  • Jan 21st, 2021 3:22 pm
[OP]
Newbie
Jun 17, 2020
13 posts
7 upvotes

Info on Credit Utilization: Loan vs Line of Credit

So, apologies if this had already been answered elsewhere- a search here and on google didn't quite help.

I wanted to apply for a loan for some house renovation finances. I went into TD yesterday and they recommended getting a line of credit instead. Total amount I was looking for was $10k. Anyway, told them I had to think over it and will get back to them.

My query is: Is LOC included in credit utilization? For example, if I use 8k of the 10k LOC, does that show up as 80% utilization? In those terms- wouldn't a personal loan have been better? If LOC does show up in utilization, wonder why people consider that as an alternative to a loan.

TIA!
3 replies
Deal Fanatic
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Aug 24, 2016
8563 posts
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The Prairies
I suppose some people just don’t want to add another debt facility to their credit bureau, when they already have a PLOC.
For a small amount like 10k, PLOC would make more sense.
Sure your score may decrease a bit, but it will recover as you pay it down.
Also, utilization is calculated as a whole of all your revolving trade lines, such as PLOC and credit cards.
So sure, while in your example above, the PLOC will be at 80% utilization, you may have 4 credit cards with 10k limit in each of those, with no balances.
So now you have 8k debt owing out of 50k total limit available to you, resulting in only a 16% overall utilization ratio.
So naturally your score will go down a bit for having one account at 80%, but it’s not near as drastic if your total utilization was 80%.
Sr. Member
User avatar
May 18, 2019
933 posts
508 upvotes
dogman13 wrote: So, apologies if this had already been answered elsewhere- a search here and on google didn't quite help.

I wanted to apply for a loan for some house renovation finances. I went into TD yesterday and they recommended getting a line of credit instead. Total amount I was looking for was $10k. Anyway, told them I had to think over it and will get back to them.

My query is: Is LOC included in credit utilization? For example, if I use 8k of the 10k LOC, does that show up as 80% utilization? In those terms- wouldn't a personal loan have been better? If LOC does show up in utilization, wonder why people consider that as an alternative to a loan.

TIA!
LoC is included in your revolving credit utilization.
Jr. Member
Mar 18, 2006
187 posts
166 upvotes
dogman13 wrote: So, apologies if this had already been answered elsewhere- a search here and on google didn't quite help.

I wanted to apply for a loan for some house renovation finances. I went into TD yesterday and they recommended getting a line of credit instead. Total amount I was looking for was $10k. Anyway, told them I had to think over it and will get back to them.

My query is: Is LOC included in credit utilization? For example, if I use 8k of the 10k LOC, does that show up as 80% utilization? In those terms- wouldn't a personal loan have been better? If LOC does show up in utilization, wonder why people consider that as an alternative to a loan.

TIA!
The TD rep is correct. Go for a LOC today, instead of a personal loan. Why?

1. The LOC is re-advanceable once setup. You do not need to visit them again, if you need the funds in the future. If you do not use it, there are no fees (and a undrawn LOC will help with your utilization as well).
2. TD allows you to "convert" an LOC balance to a loan at any time. For ex: if you've got a 10k LOC (and fully used), you can convert it to a fixed loan (I think the terms are 1-7 years with fixed rates). This allows you to pay down the balance with regular fixed payments. Obviously, if you do this, the loan portion is "not available" inside the LOC (ex: LOC is 10k, used 9k, which you transfer to a fixed loan. Your LOC only has $1k available room).

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