Your Guide to Obtaining A Line of Credit

Lines of credit are similar to loans. You are able to borrow a certain amount of funds from a financial institution and repay them later. Depending on your creditor and specific plan, your repayment terms may vary.

Generally, you will be required to pay interest on the amount of funds that you utilized. Your interest rate can also vary depending on a number of factors. Both your credit history and credits score can impact the interest rate that you are charged. 

There many uses for a line of credit. For instance, you can it utilize it for emergency medical services, expensive home improvement project and other large expenses. The amount that you can obtain from a line of credit from hundreds of dollars to thousands.

Additionally, you can acquire either a secured or unsecured line of credit. To learn about obtaining a line of credit loan and gain a better understanding of the process to make a more informed decision, review the sections below. 

What can I purchase with a line of credit? 

With the amount of funding that is available with a line of credit, you can make many purchases. Like credit cards, you can use the funds from your line of credit to make these purchases.

However, you will be able to make more expensive purchases than most credit cards allow and they will be more secured. 

With the flexibility a line of credit, you can afford a variety of expenses and repay them before your interest rate kicks in. Additionally, lines of credit often have lower interest rates and repayment plans with better terms compared to credit cards. 

Many residents choose to obtain a line of credit in order to finance an expensive home project. Additionally, this loan can be utilized toward the purchase of a home. Other residents need assistance with an unexpected medical expense and choose to obtain a line of credit to pay for it. 

Lines of credit are not ideal for everyone, especially those who cannot risk getting a secured loan. Getting a secured line of credit may put your home or another large asset at jeopardy if you cannot repay the funds that you borrowed.

If you cannot make payments on your line of credit, you can face serious financial consequences.

For instance, your credit score can be severely damaged or you could lose the collateral used for your secured loan. Likewise, if your home is used as collateral, it may be seized if you cannot make payments. 

You should not obtain a line of credit if your income is not regular. Otherwise, you may have to get a smaller line of credit. 

How do I apply for a line of credit? 

Before you apply for a line of credit, you must prepare so that you can get the best terms for your loan. You should review your credit score and examine your debt-to-income ratio prior to applying for a line of credit so that you have a better idea about your financial situation.

Credit scores have a large impact on your loan terms especially on the interest rate that you qualify for. Typically, your interest will be lower if your credit score is higher. Moreover, having a higher credit score will determine whether or not you even qualify for a line of credit. 

If you have a low credit score, it may be best to delay applying for a line of credit until your score improves. Doing this can help save money on interest. 

A debt-to-income ratio will give you an idea of how much you can realistically afford to borrow and pay back from a line of credit. Additionally, this ratio will help you determine a realistic length of time for your repayment plan.

Creditors use your debt-to-income ratio to determine your line of credit eligibility in addition to the amount that you qualify for. 

Online line of credit application submissions are permitted by many lending institutions. However, you may be required to visit one in person if you are trying to apply. For most applications, you will be asked to submit financial, personal and employment information.

Some creditors will also ask you to submit proof of your income depending on your situation.

Before you decide on one creditor, it is best to shop around and see what different financial institutions have to offer and what their terms and options are. After choosing the right lender and submitting an application, you will have to wait for the lender’s decision.

This usually takes about one week. Some creditors will request that you visit their office in person to complete the process after you have been approved. 

What is the difference between an unsecured and a secured line of credit? 

Most lines of credit are secured. Few are unsecured. If the concept of secured and unsecured credit is new to you, read below to learn more. 

With secured lines of credit, you have a type of collateral in the case that you cannot pay back your loan. Numerous assets can be used for collateral such as your home, automobile or retirement account.

If you are unable to pay back the funds you used from your line of credit, your creditor will legally be able to seize your collateral. 

While this may sound risky, there are a number of benefits to acquiring credit that is secured over an unsecured line of credit. For instance, a secured line of credit usually allows you to repay over a longer period of time and offers lower interest rates.

Conversely, an unsecured line of credit allows you to borrow funds without having collateral. However, this is uncommon as many lenders consider unsecured loans a high risk. Although you will not have important assets like your car or home at risk for seizure with an unsecured line of credit, you will face higher interest rates. 

You will likely be unable to obtain as a high of a line of credit as you would with a secured option. Furthermore, your repayment period will likely also be shorter. 

Discover Which Credit Card to Get

If you have been considering getting a credit card, you will be pleased to know that there are many benefits to owning one. This is especially true if you want to improve or fix your credit score. However, before you apply for a credit card, it is essential to review the numerous options available and the perks of each type of card. 

Different credit cards have different policies, fees and interest rates. Thus, it is beneficial to learn about common credit card fees, interest charges and other costs associated with obtaining a credit card.

Learning about this can also help you avoid certain fees and get a better understanding of what they want from a credit card and what they want to avoid. 

Credit Card Basics

Obtaining a credit card will allow you to have a line of credit so that you can purchase goods and services. With a convenient line of credit, you will not need to have funds in a checking account to make purchases. Instead, you can borrow funds by using your credit card. 

Then, you can repay the amount you used at a later time. Additionally, you can make monthly installments rather than pay in full. However, you can repay what you owe in full if you want to avoid interest charges. 

Credit Card Options

Many credit card options are available. By learning about common credit card types, you can make a more informed decision about the type that you want to get. It is important to be informed before making a financial decision. 

Standard Cards

A standard credit allows you to borrow against your line of credit but does not offer any other benefits that specialty or rewards cards do. There will still be a variety of fees, interest rate and credit-line limits with standard credit cards.

Although these cards are simple, they may be a great option if you are looking to build or repair your credit. In addition, standard cards usually do not come with annual fees or high interest. Thus, they can be beneficial for beginners and those improving their credit history. 

Secured Card

A secured card is different than other types of credit cards in that it requires a deposit to set up. They can be an ideal option for residents who do not qualify for other credit cards. Applicants with low or no credit scores are unlikely to be approved for most credit cards. If they are approved, they may have a higher interest rate.

With a secured credit card, you reduce a lender’s perception of risk as your deposit functions as your line of credit. Even though you are required to make an initial payment to obtain this type of credit card, you will still have the benefit of improving your credit through regular credit card use. 

Rewards Card 

With a rewards card, you will be able to obtain additional benefits besides increasing your credit. For instance, many rewards cards offer cashback.

This means that you can earn a percent by making certain purchases. Some rewards cards offer cashback for certain purchases like dining and vehicle fuel while others have rewards for all purchases. 

The best way to obtain cashback rewards is by using your card on purchases you make already. For instance, vehicle fuel and groceries are common frequent purchases. If you can earn five percent on such purchases, then you will earn $5 for every $100 spent. Thus, small but regular purchases can add up. 

Moreover, cashback earned from rewards cards can be applied to your balanced or relocated to a different bank account. Alternatively, you can obtain airline and hotel discounts. 

Balance Transfer Cards

A balance transfer card is a unique type of credit card. They usually come with a special interest rate for a short time, usually six to 24 months. The greatest benefit of these types of cards is that they offer a solution to debt especially if you have multiple debts with high-interest rates. 

Debts can be transferred to a balance transfer card and paid off with no or low-interest rate. This method of paying off debt works best if you pay off your balance before the promotional period ends. That is because the interest rate may be high after the promotional period. 

Specialty Card 

Store cards and student credit card are considered to be specialty cards. They are targeted toward specific populations have unique benefits. For instance, student credit cards are usually only available to students to help build credit. 

On the other hand, a store credit card offers cashback and rewards that can be used for future in-store purchases. The downside of these cards is that they are limited to a specific store. 

Credit Card Benefits

Owning a credit card comes with several benefits. While different types of cards offer specific benefits such as cashback and discounts, most cards come with some general perks. One benefit includes the ability to repair or build credit. Additionally, credit cards often come with purchase protection. 

Fees and Interest Rates

With any credit card, you will be required to pay certain fees and interest on purchases. Interest charges are calculated based on your set interest rate and the balance on your card. If you have a high-interest rate and/or balance, the more you will be charged. However, interest charges can be avoided if you pay your balance in full each month. 

There are other types of fees that you may be charged in addition to your interest. Many credit card companies charge annual fees. You are charged this fee once per year to keep your account open. 

Depending on if you have a specific type of card and your credit card company’s policies, you may be charged other fees. Often, credit card companies charge for late payments as well as if your payment is rejected. Additionally, when you use your card outside of the United States, you may be charged a foreign transaction fee. 

Furthermore, many credits cards charge a certain percentage on cash advances. Thus, if you regularly borrow cash from your credit, the fees will add up. Another common charge is a balance transfer fee. This is a fee that is charged when you transfer existing debt onto a different credit card.