4 things to know before applying for a personal line of credit

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Whether you’re looking to repair an aging car or remodel an outdated kitchen, a little extra financial boost can be a big help. For many people, a good way to get that assistance is with a personal line of credit.

A personal line of credit can be used for any purpose. Your lender gives you a maximum amount that you can borrow against, but you use only what you need. Additionally, you only make payments based on the amount ultimately borrowed.

“A personal line of credit can help smooth out those times when expenses might be a bit high,” says Sarah Chenven, deputy director for Credit Builders Alliance. “It can give people a sense of security if they know that they have it available to them.”

Here are a few things to know when you’re looking for a personal line of credit:

1. Good habits help you qualify

Qualifying for a personal line of credit can be as simple as having a checking or savings account at the bank where you are applying. Making regular deposits, such as having your paycheck directly deposited into your account, helps to demonstrate consistent money management habits.

Having a solid credit history is also important. You can review your history by obtaining a free credit report at AnnualCreditReport.com. By reviewing your report, you can check for any errors and take note of credit issues that need to be addressed.

2. Lack of credit history isn’t a deal breaker

Those with no credit history can still demonstrate their creditworthiness. Lenders look favorably upon those who have a record of reliably managing their expenses, such as rent and utilities.

“A bank isn’t likely going to look at a credit score alone, but may take other factors into consideration as well,” Chenven says. “These could include debt-to-income ratio, which is a comparison of your debt to your overall income, or whether you are paying regular bills on time.”

3. Know your credit score (in addition to your credit history)

Knowing not only your credit history, but your actual credit score can also be helpful, says Curtis Arnold, author of How You Can Profit from Credit Cards and founder of CardRatings.com and BestPrepaidDebitCards.com. Lenders use different formulas to translate your credit history into a score that can be used to rate your creditworthiness, so there is no single credit score that applies across the board.

A higher credit score increases a lender’s confidence that you will make payments on time and may help you qualify for a lower interest rate. The inverse may also be true—if you have a lower score, it could be difficult to get a line of credit, and your interest rate could be higher.

“It’s good to know your score right before you apply for credit,” Arnold says. “Then ask the loan officer: What is your typical credit score range? Knowing your credit score arms you with knowledge [and] knowledge is power.” And remember: The same score denied at one bank could be acceptable at another.

4. Know your options

Lines of credit can be either secured or unsecured. Secured lines of credit are protected by an asset or collateral of some sort. With these come different options for the line amount, interest rates, terms and speed of approval. Here are the major differences between the two:


Secured Line of Credit

Collateral is required (collateral might be a savings or  investment account)

Unsecured Line of Credit

No collateral is required

Line amount is generally



Interest rates are often



Repayment term (how long you have to repay the outstanding balance) is generally



Line term (the period of time you can access the credit) is generally

About the same

About the same

Amount of paperwork/
Time to approval is usually

More paperwork / Slower

Less paperwork / Faster


Perhaps the greatest benefit of a personal line of credit is the peace of mind it can bring. “Even if you don’t need the money right away, you never know when that rainy day, that emergency, is going to come,” Arnold says. “Having that line of credit as a safety net is a really nice thing to have.” He adds that even with a line of credit, it’s also a good idea to have a rainy day savings account.

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