At a Glance
A line of credit is a loan that grants you access to on-demand money that can help you finance a range of expenses such as car maintenance, stock purchases, or mortgage repayments. Just like a typical loan, a line of credit limit is determined by several factors including your credit score, ability to repay, household income, mortgage applications, and so on.
An issuer of a line of credit may look at how well you’re repaying your loans while also checking your mortgage applications to determine your income-to-debt ratio. A borrower with more mortgages and financial commitments might generally end up with a lower line of credit because most of their income is committed
Is a line of credit good for you?
Lines of credit come with their fair share of pros and cons. To help you figure out whether or not it is right for you, consider the following:
Pros
● Lower interest rates compared to loans
● Normally contains flexible repayment plans
● Zero penalties for late or early repayments
● A better option for debt consolidation
Cons
● Interest rates may vary depending on a lender’s policies
● Unless one is disciplined with repayments, one risks sinking in debt for a long time
● Missed payments damage your credit score
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