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Credit Line |
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A credit line is the amount of money an issuer of credit has extended to you. It’s actually a loan that you are able to borrow against it. A credit line is also known as a line of credit or simply, a line. As you borrow against the credit line, you’ll repay the balance according to a predefined payment schedule. And as you repay the principle on the credit line, that money becomes available to use again.
Credit cards issue revolving credit lines. If you look closely at each of your monthly credit card statements, you’ll see an area labeled “available credit.” This amount is equal to your credit line minus the new balance on that credit card.
The maximum credit line an issuer is willing to extend is based on a number of factors including the number of years you’ve been a customer and your history of credit card payments. If you prove to be a good credit risk, you’ll notice that occasionally your credit line will be increased. As long as you don’t exceed your credit line, you’ll be allowed to continually make charges (or take cash advances) against that credit line.
Business owners and homeowners can also take advantage of credit lines. These can help when you need to purchase equipment to run your business or you need to make home improvements. You’re able to draw down the credit line as you need and again, as you repay the principle the money again becomes available to use as needed.
A credit line can be either secured or unsecured. With a secured line of credit, you will be required to list an asset with a value high enough to cover the credit line as collateral. With the credit line secured by a valuable asset, the lender reduces the amount of risk it is taking by loaning you the money. Should you be unable to repay the credit line, the lender has a legal right to take possession of the asset listed as collateral. Most credit cards, on the other hand, issue unsecured lines of credit, meaning you don’t have to put any of your assets at risk.
To obtain a credit line, you’ll start by filling out an application. From there, your credit history will be evaluated to determine your creditworthiness. Your ability to repay the credit line will also be evaluated which is why the application requests information about your employer and your other sources of income.
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Credit Card Definitions > A - E > Credit Line
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