Credit Line Vs Credit Limit

A credit line, also known as a line of credit, establishes a predetermined borrowing limit that you can access from a financial institution. You can borrow and repay the money up to the credit line at any point in time. 

You can secure the line of credit by staking collateral or leaving it unsecured. Unsecured credit lines typically have higher interest rates. The lender will charge interest on the amount you use from the available line of credit. You can choose to repay the credit every month or all at once.

On the other hand, the credit limit represents the maximum amount you can borrow and use. This limit is granted on your credit line or financial products like credit cards. Your credit limit is decided by lenders after taking into account numerous factors. These include your earnings, type of employment, repayment behaviour, credit score and more.

You will get a lower credit limit if lenders consider you a high-risk borrower. Conversely, if lenders see you as a safe or low-risk borrower, you will be granted a higher credit limit.

Points to Remember

• A line of credit is open-ended, implying that spending and repaying money is cyclic. While it offers flexibility, it can also lead to over-expenditure. 
• Exceeding your credit limit affects the credit score since it implies severe repayment inability and overextended debts.

FAQs on Credit Line Vs Credit Limit

What is a credit line?

A line of credit refers to the borrowing amount that you, as a borrower, can access whenever necessary. You can withdraw funds from a credit line until you reach a specified limit. 

What is a credit limit?

A credit limit is the maximum amount available to you or that you can use via credit facilities like a credit card or line of credit. The exact credit limit you get depends on your credit profile and the lender. 

What is the difference between a line of credit and a credit card?

A line of credit is a credit facility that you can get from banks, NBFCs or other financial institutions. It allows you to withdraw funds up to a certain limit and requires you to pay interest on what you use. A credit card is a credit solution that enables you to pay for transactions up to the credit limit it offers and repay your bills every month. It only requires you to pay interest if you are unable to clear the balance due. It also offers you rewards and deals, unlike a line of credit. 

Is credit line the same as credit limit?

No, a credit limit is not the same as a credit line. A credit limit is the maximum amount you can use via a financial product or service. On the other hand, a credit line is a credit facility that allows you to withdraw funds up to a specific limit and repay as per the terms decided between you and the lender. 

What does an unsecured credit limit mean?

An unsecured credit limit refers to credit you can get without any collateral. Your creditworthiness, financial history and other vital factors determine this limit. 

What determines your credit limit?

Your credit limit depends on numerous factors, such as your earnings/salary, your source of income, your credit report and the lender’s policies.

The credit limit is the maximum amount a borrower can avail. Credit limits are extended on the credit line. Lenders set the credit limit for borrowers based on their credit report. High risk or low credit score borrowers are provided with a lower credit limit than low risk or high credit score borrowers.

Points to remember:

• A Line of credit is open-ended, implying that spending and repaying money is cyclic. While it offers flexibility, it can also lead to over expenditure. 
• Exceeding your credit limit affects the credit score since it implies severe repayment inability and overextended debts.