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In case, you were wondering what a line of credit loan is: A line of credit is an open-ended borrowing option that you only have to apply for once. What this means is that a line of credit once approved remains active even after you have paid up your debt down to the last cent.

With a line of credit in place, you can always borrow more money without making a new application. In other words, you have a subsisting ‘line of credit’ against which you can draw more loans up to your available credit limit. Interest and/or fees are only charged on the amount of money you actually use, not your entire credit limit.

The specific terms of a line of credit vary according to the states where it’s offered. You need companies that offer lines of credit that are suitable for unexpected expenses that may occur in your day-to-day life as well as for unexpected business expenses.

Now that you get the full picture, here are a few things you need to know before you apply for a line of credit.

  • Your Credit Score

Before you consider applying for a line of credit, you must be conversant with your credit score. You can find out your credit score and how it’s calculated by taking a Credit Score Quiz.

Your credit score is the only way the banks or lending body can determine your creditworthiness. It’s a number based on the size of your debt and how timely your debt payments have been in the past. Lending bodies will typically extend you a line of credit if you have a higher credit score.

  • Your Credit History and Ability to repay

Like in most other online loans, Lenders want to know if you’re able to pay back the loan, and it won’t turn into online loans bad credit. For a line of credit, lenders will scrutinize how much money you make, they will want to see how secure and sustainable your job and lifestyle is as well as how well you’ve paid your debts in the past.

If you’re applying for your business, lenders will typically want to know about your business profitability and business risk.

  • Line of Credit Limit

Once you apply for a line of credit loan, the lender will apportion you a credit limit, which is essentially a maximum amount accessible to you via your line of credit.

One of the most popular ways lenders calculate a credit limit is using the HELOC method: home equity line of credit. A HELOC loan is one in which the lender agrees to lend a maximum amount, where the collateral is the borrower’s equity in his/her house.

The financial institution determines your limit by subtracting what you owe on your mortgage from a percentage (usually 75 to 80 percent) of the appraised market value of your house. For a business line of credit, your office building and business real estate will probably serve.

  • Your Interest Rate

You probably want to know what the interest rate is like for a line of credit. The lender will typically determine your interest rate by adding an indexed rate (usually the lowest rate you can get from a bank) to a margin.

The margin is affected by all the earlier stated factors, your credit history, ability to repay, profitability, and business risk. This way they can come up with interest you can cope with based on the facts.

If you’re an individual or business that faces many large costs over an extended number of years, a line of credit may lean greatly to your advantage to help you pull through.

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