Line of Credit
Tips on getting a line of credit
A line of credit is an arrangement you make with your bank or financial institution to borrow money at a fixed rate, up to a predetermined limit. This can take the form of a credit card or of a special lending account. As you pay down your line of credit, you can borrow up to your limit again, as with a credit card. Many people use lines of credit to buy cars, fund renovations or buy a home.
If you are interested in getting a line of credit, here are some tips to help you decide which line of credit is right for you and how to go about getting it.
In order to get a line of credit, you will need:
- A good credit rating and a complete credit history
- A minimum household income of $35,000 or someone who makes that much to co-sign
- A complete application with a credit check
- A low debt-to-credit ratio (you should not have other big sources of debt)
If you have all of these things, you will probably be approved for your line of credit.
Types of Lines of Credit
There are different types of credit available for the average consumer. Loans available include:
- Business line of credit. Business lines of credit help small business owners start up their businesses or continue to run their businesses using a loan from the bank. A commercial line of credit may help fund overhead, for example, and may carry lower interest rates to help businesses succeed.
- Home equity line of credit. Home equity lines borrow against the equity in your home. This is a good option for people who own their own homes outright.
- Mortgage line of credit. These loans borrow against your mortgage. Such a home line of credit can be risky if you can't pay it back. You can stand to lose your home, which is likely your most valuable asset. It is important to examine your options before opting for this type of loan.
Lines of credit have advantages over other loans because they carry lower interest than traditional credit cards and normally have no fees to set up. You can also pay off the entire balance of your line of credit at any time without penalty, and there are normally no annual fees.
If you feel that a line of credit is right for you, speak to your bank about your options. A line of credit is a cost-effective way to borrow money for a short period of time; however, like any credit, you will have to be responsible about paying it off in order to keep your credit score high.