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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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