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What is a Personal Line of Credit?

A personal line of credit, such as a credit card, is unsecured.
A strong credit history is the key factor in whether or not a personal line of credit application will be accepted.
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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 02 September 2014
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A personal line of credit is an unsecured revolving line of credit that applicants can use in a variety of ways. It is extended through a bank and is often linked with checking accounts, so that applicants can use the credit as an extension of their regular bank account. The amount of the credit line varies, depending on the bank and the credit history of the applicant.

Unsecured lines of credit are provided without the need for collateral. Credit cards, for example, are often unsecured, by contrast with home loans, which use the home itself as collateral for the loan. Revolving lines of credit have a revolving balance and payment, rather than a fixed rate of payment.

Personal lines of credit can be used for things like buying a new car, purchasing furniture, or dealing with other life expenses. As soon as the credit line is activated, the recipient begins to receive monthly statements that disclose the balance, interest, and minimum payment. People can choose to pay off their statements, or carry a balance, depending on their financial situation.

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When people need a set sum to deal with an unexpected expense, they often choose between personal loans and personal lines of credit. A personal loan is a fixed sum that is distributed all at once, with the recipient being required to make set monthly payments for the life of the loan. By contrast, a line of credit can be used and accessed at any time, with the recipient taking as much or as little as is needed, and the monthly payments are not set. Some people prefer this flexibility to the more restrictive personal loan.

Recipients can access a personal line of credit in a variety of ways. The credit line may be linked with a checking account, or the recipient may have checks or a credit card associated specifically with it. Cash transfers between the personal line of credit and a bank account can also be made to make funds available.

People who want to apply for credit will need to fill out an application and undergo a credit check. A strong credit history is the key factor in whether or not the application will be accepted, with good credit increasing the amount of the line of credit.

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anon287332
Post 4

That was helpful. A few credit card companies have used the tradeline word and I had no idea what they were talking about. I just figured that since I had open revolving credit that instead of applying for credit cards (different issuers) I guess I should have asked for a personal line of credit, but I have or had other issues that make my situation a bit different. I'll use this to help me figure out some other topics that are confusing!

chicada
Post 3

@ ValleyFiah- I would dispute some of your claims as far as the cost of the personal line versus the credit card. I have a credit card through my credit union. I also have a car loan with the same credit union. My credit is only fair (670 range), but my interest rate on both my truck and my credit card are well below the rates I could have received form my bank where I hold my checking account.

Most banks are running their personal line of credits at about 12.25%, but my no-frills platinum card is at 8%. If I would have chosen the card with the points, it would have been ten percent (I opted not to since I carry a balance, and the points are only equal to 1% cash back). When I bought my truck my national bank wanted a 16% interest rate on my loan, but the credit Union approved me at 10.7%. I would recommend shopping around. Credit unions are not for profit so they have the biggest benefits to members.

ValleyFiah
Post 2

@ Frammaker- an unsecured personal line of credit is essentially an unsecured revolving line of credit that is linked to your bank account. They are similar to a credit card, except they usually have a lower interest rate, do not charge for cash withdrawals, and rates will fluctuate with the current market rate. If you qualify for a personal line of credit, you will find that they are often more versatile than a credit card, and cost less in the end. You can essentially use the line of credit the same as you would use cash in the bank. I would recommend the personal line of credit if you qualify, simply for the interest savings.

FrameMaker
Post 1

What is better, a personal line of credit or a credit card? I have been working vigilantly to earn good credit over the past few years, and it is now good enough to qualify for good credit deals. Until now, I have only kept one credit card, one department store card, and an automobile loan. I would like to open a new line of credit, but I do not know what I should choose. I do not need a loan, so I am not concerned with info on personal lines of credit vs. personal loans. Can anyone tell me the difference between the two?

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