Having a bad credit history could be one of the many reasons why you would like to take out a line of credit. A line of credit is a specified amount of credit that can be used again and again after it’s paid off or paid down. When you have bad credit, your borrowing options are limited and line of credit could be taken out in various forms (Google).
Line of credit is offered to both individuals and business entities. When being offered to individuals it could be either unsecured line of credit or secured line of credit. The difference between the two is that secured line of credit usually involves your house serving as collateral. When line of credit is offered to business organization, it requires any of the latter’s assets to be pledged as collateral.
It could often be the case that either individuals or business entities face liquidity problems and are frequent borrowers. In such circumstances, you can seek line of credit from your existing bankers or from other financial institutions.
Line of credit is a better option when compared to loans which require you to pay high interests and allow little flexibility.
Due a bad credit history, you would often be suggested to opt for secured line of credit, though it is not always mandatory. Line of credit works more on the lines of credit card. The total amount that you can borrow is approved at the beginning and it does require you to use the credit all at once. The credit can be used as and when the need and necessity arise and you are only charged for the amount used on a monthly basis. The credit amount can be used again within the preapproved credit limit without having to reply every time you want to use it.
It is better to apply for this specific type of credit when you have a good credit rating which would help you to secure a higher borrowing limit and keep it aside for a rainy day. Applying after you have got bad credit not only limits your chances to securing a line of credit itself and also the amount to the preapproved.
The preapproved amount can range anything from $500 to $100,000. Some bankers charge an annual fee for the line of credit service. This would have to be paid even if you don’t use the credit. The monthly payments of this loan would often be towards the interest only. The interest also tends to fluctuate in most types of this credit. Hence if you want to get your line of credit limit to clear up you would be needed to make additional payments towards to the principal amount.
The specific type of credit can also be taken out by both individuals and business who want to repair and rebuild their credit history. Easy availability of the credit does tempt to use it all in one go. Use as and when required and only the required sum and you are all set to create a better credit record.