A line of credit is a convenient and affordable option when it comes to financing your life needs. You can use either a personal line of credit or a business line of credit. However, if you want to make the most of this credit option, you must follow certain rules in order to make the lending relation between you and your bank have long term benefits and also favourable for your credit status.
How Does a Line of Credit Work?
A line of credit or LOC is an arrangement between a bank / financial institution and the borrower which allows the borrower to maintain a maximum loan balance account with the lender. This is referred to as the “line of credit account”. It is a revolving form of loan, where an amount is set and is made available to the borrower to borrow from. The advantage is that interest is charged on how much loan you actually utilise. It is not based on the loan amount that you are entitled to. This makes it a more cost-effective option compared to regular loans, provided you operate within the line of credit limit. However, like any loan, crossing the line of credit limit poses a significant risk of reducing your creditworthiness.
What is a Line of Credit Limit?
When you avail any form of credit, you are restricted by certain rules and regulations in your borrowing capacity. Similarly, the maximum amount you can borrow from a line of credit is called the line of credit limit. The line of credit limit value varies significantly based on factors such as your lender’s policies and processes, your relationship with your lender, and your credit qualifications or credit worthiness. Having a higher line of credit limit allows you greater flexibility in borrowing. Hence it is important to maintain a healthy credit worthiness to be able to increase your line of credit limit.
How do You Increase Credit Limit in Line of Credit?
Many people often rack their brains on how to increase limit on line of credit. There are various means to increase line of credit limit. One of the ways is to request for a line of credit limit increase with your lending institution. If opting for this approach, the key question to ask yourself here is, “Does requesting a credit limit increase hurt my credit score?” The answer is yes, it may. Requesting an increase in a line of credit limit may trigger a “hard enquiry” into your credit report, This means that your lender will scrutinise your credit worthiness by re-evaluating your CIBIL score. Too many hard inquiries into your CIBIL score can hurt your credit score. It can have a negative impact on your credit worthiness and future borrowing capacity.
On the other hand, if you have a very good line of credit repayment reputation or your income has increased, you may be eligible for an automatic credit limit increase. This is one of the best ways to increase your credit limit because it means that your lender trusts you and treats you as a valued and reliable customer. You are one of those customers who will seldom default on repayments on your line of credit. On the flipside, not repaying your line of credit dues can lead to a reduction in your line of credit limit and really damage your credit worthiness.
New Age Options For Increasing Line of Credit Limit
Today you have a number of options to choose from when it comes to availing a line of credit. Fintech companies are emerging in the form of online lenders. They are offering a plethora of credit options to borrowers based on their unique requirements. Maintaining an ongoing relationship with such online lenders is easy because it is completely virtual and hence, location-agnostic. One such lender is MoneyTap. Their understanding of the modern consumer helps them cater to specific needs, such as a greater line of credit limit.