We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Credit Line?

By Satyra Riggins
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A credit line, also sometimes called a “line of credit,” is an amount of credit — or borrowing power — extended to a person, business, or organization, usually by a bank or other financial agency. Sometimes credit is also offered by specific merchants. Some of the most familiar examples are personal credit cards, which allow individual borrowers to spend a certain amount of money “on credit,” for which they are usually billed at the end of the month, quarter, or other fixed period. Many people are also familiar with credit lines in the context of home ownership. Buyers who can’t afford the upfront cost of a home are often able to finance it by obtaining a home equity line of credit from a bank or credit union. This is often done in conjunction with a mortgage. Business credit is related, and can usually be applied to things like building purchase, capital expenses, or costs associated with startup operations. Credit is usually seen as an advantage in either personal or corporate settings, though it’s not without its risks. Payments not made promptly usually incur penalties and interest fees, for instance, and paying less than the balance owed can usually harm a person’s credit rating, a number used by lenders to assess a borrower’s liability and attendant risk.

Personal Credit Cards

Perhaps the most common instances of lines of credit comes in the form of personal credit cards issued either by stores or major financial institutions. The maximum amount that a person may spend on their credit card is known as the credit limit or maximum line. Most cards are issued by banks or other licensed financial institutions, and each typically has its own specific terms; in general, though, borrowers are started out with a relatively low cap for spending. Once a pattern of prompt payments has been established, the credit limit is usually extended to enable more and more spending power.

Most credit cards require some sort of an annual fee, though not all do. Additionally, most charge a rather steep interest for payments “floated” or not paid in full when due. In many instances, borrowers are allowed to spend up to their established limit provided they pay a set minimum amount due. Paying only the minimum can be a good way to purchase expensive items that can be financed over time and it does allow a lot of flexibility, but borrowers are usually wise to understand the penalty interest rates before going this route, since, over time, these can and often do really add to the overall price of the item.

Home Equity

Another example 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. In most cases, credit is extended to a homeowner based on the amount of equity that he or she has in the home, and is often what makes purchase possible for buyers with the means to pay for a home over time, just not upfront.

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 fees, and closing costs, if any. 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. Others offer a minimum payment over a set period of time. Furthermore, when selling a home that's subject to a line of credit, the balance must typically be paid in full prior to completion of the sale.

Business Credit

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.

This sort of credit 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 must in most cases personally guarantee that any outstanding balance will be paid. What this means is that, 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.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

By sneakers41 — On Jul 18, 2010

Café41- I also have a home equity credit line, but I have not used it yet.

The bank said that whenever I need to use it I can just write checks and then my loan will be recorded for that day forward and the ten year repayment term will apply. I have my credit line with Bank of America.

By cafe41 — On Jul 18, 2010

Millhouse- I also heard too. I just want to add that took out a home equity line of credit and according to the bank I needed to raise my flood policy along with my home owner’s insurance policy to cover accepted standards by the bank.

I had to pay for an appraisal, but in my case I had no closing costs. I used this money to purchase another property since my home was paid off. I was offered a variable rate of 3.25% and had a pay off term of ten years. I was told that I could reapply for another home equity line of credit if I needed more time.

I also had the option to establish a fixed rate, but this rate was significantly higher than my current rate. It was a difference of five percentage points, so I preferred to play the odds.

By millhouse — On Aug 19, 2008

As for credit card credit limits, it's typically recommended that you don't maintain a balance against that credit line that is more than 1/3 the limit.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.