How to Start a Line of Credit

A line of credit differs from a traditional loan in that they allow you to borrow money on an “as needed” basis. Persons who apply for a loan obtain a lump sum of cash, which typically involves a fixed monthly payment and fixed terms. On the other hand, the payment on a line of credit varies, and it can take years to pay off the balance.

Things You'll Need

• Credit Report
• Lender
• Application Fee
• Appraisal
• Closing Costs

Instructions

1. Choose a specific line of credit. There are different lines of credit. Persons who own a home may benefit from a home equity line of credit, which are easy to obtain. Meanwhile, persons operating a business may prefer a business line of credit. If you’re looking to build a credit history, consider opening a credit card account.

2. Increase your credit score. With any line of credit, your credit score plays a vital role. This determines whether you qualify for the loan, and the interest rate acquired. Order a copy of your personal report. Consider ways to improve your credit such as paying off debts, limiting credit inquiries and paying bills on time.

3. Understand how a line of credit works. A line of credit is a revolving account. Thus, monthly payments are based on the amount borrowed. To maintain affordable monthly payments, it’s best to borrow a small amount. In addition, the average line of credit has a variable rate, which can also increase or decrease your payments.

4. Look for a home equity lender. If you decide to open a home equity line of credit, choosing a good lender is important. You can obtain a line of credit from your current mortgage lender, or choose an entirely different one. Get a no-obligation quote from at least three lenders. Be prepared to pay an application fee, appraisal and closing costs.

5. Apply for a business line of credit with a bank. There are many ways to obtain a business line of credit, you can apply for a business credit card, or get a line of credit from a financial institution.

6. Get a credit card. If you want to build a credit history or improve your credit, a credit card can help. These lines of credit are easy to obtain. Persons who can’t qualify for an unsecured credit card may consider a secured credit card, which requires a deposit.