Finance Credit

How to get a line of credit?

Published at 02/20/2012 18:11:42


A line of credit is a pool of available money that you can borrow. When you get a line of credit, you get the ability to draw up to the maximum limit. The most common forms of  lines of credit for consumers is a home equity line of credit. You use your home equity as collateral. The bank will assumes that you will be able to repay the line of credit to avoid losing your home in foreclosuse. 

Step 1

If your business is in need of cash, then you may need to know how to get a line of credit. Cash flow problems can arise in any business due to low seasons or even sudden growth. Lines of credit are especially useful in helping a business run during these hard times. They are authorizations for loans whose borrowing limit is specified. Lines of credit are usually issued by banks and other lending institutions or individuals.

To learn how to get a line of credit, you need to know that most often your credit score will either qualify or disqualify you from getting a line of credit. Your credit score reflects how much debt you have and how timely you are in paying debts in the past. It determines whether you are credit worthy or not. Your chances of getting a line of credit are greatly improved when you have a high credit score. Financial institutions will always investigate whether you or your business is able to pay. They will evaluate your business risk and profitability before issuing a line of credit. If you want to know how to get a line of credit it is important to increase your chances of getting a line of credit by ensuring that your business is profitable and running at low risk.

Step 2

Another factor that financial institutions consider before issuing a line of credit is the credit limit. This is usually determined by the assets used security for the line of credit. The credit limit is usually a percentage of the value of the security which is usually a building or other property. The credit limit could also be affected by your credit worthiness which is determined by your ability to repay and your credit history. If you want to work on how to get a line of credit, you need a high credit limit to make sure that you have enough security and a favorable credit history.

Step 3

The interest rate is another factor to consider when finding out how to get a line of credit. The interest rate is usually determined by an indexed percentage rate. The index usually sets the lowest interest rate that a bank could charge for a line of credit. It is affected by the business profitability, risk level, ability to pay and credit history. The banks willingness to take risks will determine the minimum interest rate allowed.

Step 4

Another important factor on how to get a line of credit is to know that lines of credit are issued to people or businesses that show evident ability to repay or have considerable collateral to qualify for the credit. They are however a better option for businesses facing multiple large costs over a long period. This is because they offer multiple withdrawals and charge interest on the withdrawn amount only. For single large projects it is however better to get an ordinary loan. On the other hand for small purchases that are made regularly and can be quickly paid it is better to use a credit card even though their interest rates are quite high. Once you learn how to get a line of credit, you can enhance your opportunities.

Step 5

For both individuals and businesses it is possible to get a line of credit. Most banks will demand security to guarantee payment of lines of credit issued to individuals and newly established small businesses. However some banks will extend lines of credit to established businesses that are credit worthy and have a strong ability to pay back. By considering the above factor it becomes more elaborate how to get a line of credit.


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