A credit line, or line of credit, is the amount of credit extended to a borrower. The amount of credit extended is most often based on the borrower's credit rating. A credit rating, or credit score, is an assessment of a borrower's credit history coupled with their assets and/or liabilities.

Perhaps the most common credit line is the maximum amount a person has on their credit card. The maximum amount that a person may spend on their credit card is the credit line for that credit card.

Another common type of credit line is the home equity line of credit (HELOC). Home equity is the difference between the amount owed on a home and the amount that the home is worth. A credit line is extended to a homeowner based on the amount of equity that they have in their home. Setting up a line of credit requires several upfront costs that must be taken into consideration. These upfront costs include appraisal fees, any predetermined application fee, and/or closing costs. In addition, a HELOC typically has an adjustable or variable interest rate though it may later be converted to a fixed interest rate. All of these factors should be taken into consideration when considering whether to apply for a home equity line of credit. Repayment options for a line of credit should also be considered. Some repayment options offer a set payment for a set period of time. Other repayment options offer a minimum payment over a set period of time. Furthermore, when selling a home with a credit line, the balance must be paid in full prior to completion of the sale.

Lines of credit are also extended to business owners. A credit line in this situation is often used to provide liquidity to the business. This liquidity may be used to expand the business, purchase new inventory, pay off other business debts, or any number of possibilities.

These credit lines may be secured by the business owner’s collateral or a lien against the business or they may be unsecured. When the credit is unsecured, the business owner has to personally guarantee that the credit line will be paid. If the credit is not paid, the business owner’s personal assets may be used to pay off the loan. Business owners should be very careful, like homeowners, in knowing all the terms and conditions of their credit line. Misunderstanding the terms and conditions of repayment for a line of credit could be devastating to a growing business.

Both individual borrowers and business borrowers should be very careful when securing a credit line. Make sure that you understand all the requirements and obligations. If anything is unclear, get clarification. Credit is a privilege that can be taken away by a few unknowing mistakes — don’t make those mistakes.