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What is a line of credit and how does it Work?

A line of credit is a preset amount of money that you've been approved to borrow from a bank, credit union or other financial institution. You can borrow as little or as much as you need, up to the maximum amount offered. You will be charged interest on the amount borrowed until you've repaid the balance. There are secured and unsecured credit lines. Sometimes, it's easier to describe how a money move works with real-life examples, so let's take a look at a few situations where a line of credit is often considered.

Benefits of line of credit loans:

  • Borrow Larger Sum of Money with a Line Of Credit Loan
  • Instant Cash with Line of Credit Loan
  • Interest Rates Less with Line of Credit Loan
  • Interest Paid Is Tax Deductible
  • Use Funds for Any Purpose

    What is the requirements for the line of credit?

    Since a personal line of credit is unsecured, you'll need good or great credit to get approved. So, before you apply, check your free annual credit reports and your credit score to see where you stand. You'll need a prime credit score to get the best rates. I've seen what's considered a prime score fluctuate over the years, and it also varies among lenders. But right now, a prime credit score is considered to be at least 720. A near-prime score starts in the mid-to-high 600s, but if you're in that category, it's more difficult to get approved for a line of credit.