Personal Line of Credit

Credit line allows you to borrow in increments, repay it and borrow again as long as the line remains open.

Typically, you will be required to pay interest on borrowed balance while the line is open for borrowing, which makes it different from a conventional loan, which is repaid in fixed installments. Debt consolidation loans and balance transfer credit cards can help you manage your debt by combining multiple lines of credit under one loan or credit card.

Personal LOCs often come with lower interest rates than credit cards, making them a much better choice for borrowing. They also offer variable access to cash instead of a lump-sum, single-purpose loan. A credit line allows you to borrow in increments, repay it and borrow again as long as the line remains open. Typically, you will be required to pay interest on borrowed balance while the line is open for borrowing, which makes it different from a conventional loan, which is repaid in fixed installments.

How to apply for a credit line?
Personal lines of credit are unsecured, which means you don’t need to offer collateral to protect the lender if you default. That makes it different from home equity lines of credit (HELOCs), which are secured by the equity in your home. Since risk is a key facet of lending, interest on a LOC will almost certainly be higher than on a HELOC. Therefore, it’s crucial to convince the lender that you are a good risk. Never having defaulted on a loan, or not having defaulted in years, helps. Having a high credit score also demonstrates creditworthiness. You should also let the lender know about all sources of income and your savings, which can help establish you as a good risk.
How large a credit line should you request?
The larger your credit line, the greater risk you pose to the lender. You should probably hold your requested amount to what you realistically might need to borrow, keeping in mind your income stream and ability to repay the borrowed money. Lenders will evaluate your creditworthiness using several metrics including your credit score, you loan repayment history, any business risks you might have and your income and will limit how large a line they offer.
What credit scores and collateral might be required?
Since personal LOCs often are made based on income and credit history, having a strong credit score is crucial. Credit scores, assigned and updated by the nation’s three large credit-rating agencies, range from 300 to 850. The higher your score, the better your risk profile. Typically, you will need a prime score, no lower than 680, but each lender has its own standards. Most personal LOCs don’t require collateral, but you might be able to improve your odds of qualifying and lower your rate if you have an investment, such as a CD or savings account, with the lender that can partially secure you credit line.

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