Maintaining or Closing Down an Unused Line of Credit: My take

Should you close down your unused line of credit?

For the most part, I'd say no.

Use your line of credit as your emergency fund

I like to think of a line of credit as an emergency fund, money that's almost always accessible/available to you, while allowing you to fully invest your savings or make extra mortgage payments.

I know it's a very popular recommendation on many online forums to keep a 3 or 6 month emergency fund in some type of liquid account (like a savings account). I personally disagree with it. I'd think it's better to have that 3 or 6 months of monies invested into something less liquid but with greater returns (like a bond or GIC in a TFSA) and use the line-of-credit to carry you over until you can/need to withdraw from it. Or you could use the line-of-credit to minimize the expenses incurred from selling stocks piecemeal, but rather selling only when you need to. Sometimes it can make sense to delay a sale into the new year to avoid having to pay tax until the next year. Keep in mind with a TFSA, you don't regain the room from withdrawals until the next year, so it can sometimes make sense to take the money out in December before you need it, and then re-contribute it the next year. Check the TFSA regulations for details.

Chances are you won't need to use an emergency fund, so it's best to not wastefully hold those funds in a low return account when a bank will freely give you the option of having a bunch of money accessible to you whenever you need it. Free options at someone else's expense? I'll take ten!

The above only applies if your line of credit costs you nothing to hold onto and unlikely to be closed down by the bank. It also assumes that you're disciplined enough to not dip into your line-of-credit frivolously. Finally, it assumes that the line-of-credit doesn't impact your credit score to a problematic degree. An open line-of-credit does show up as available credit to the two Canadian credit bureaus, Transunion and Equifax (whose credit reports you should check!), but unless you'll be applying for a lot of credit, like a mortgage, it shouldn't matter much.

Should I Get a Line of Credit If I Don't Need One?

Well, that all depends on the these three (above) questions:

    •    Does it cost anything to have/keep the line of credit?
    •    Are you disciplined enough to not touch the line of credit when not required (I'll say it: if it's a question, you may not be)
    •    Will you be applying for another big form of credit in the near future?

There's a reason why TD bank wanted to charge for having an inactive line of credit during the recession, because it costs them money to have money available to loan out to you. TD reversed it because of the customer backlash, but it's true, it costs the bank money to have a line of credit available to you, and you can benefit from that option at the bank's expense.

Keep in mind that banks won't loan you money when you need it, only when you don't need it. So if you think you shouldn't get a line of credit because you don't need it and won't use it, then you're the ideal person to benefit from one from a personal finance point of view.

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