Credit Line Loans

A line of credit offers flexibility, ongoing access to funds, and the potential to build or improve your credit score. Explore the options available to you and choose wisely when it comes to your financial well-being.

Table of contents

Written by Mark Grimley
Read time: ~5 mins
Published: 28th September 2023

What is a line of credit?

A line of credit is a flexible financial tool that allows you to access cash up to a predetermined credit limit. Think of it as a pool of money that you can dip into whenever you need it. Unlike a traditional loan, you don't receive a lump sum upfront. Instead, you have the freedom to withdraw money as needed and only pay interest on the amount you've borrowed.

How can I get a line of credit?

Getting a line of credit can be a straightforward process. Here's a step-by-step guide to help you along:

  • Compare your options: Review the options available, paying attention to interest rates, repayment terms, and any additional fees. Ensure the line of credit suits your needs and budget.
  • Apply online: Once you've found the right line of credit, complete the application process online. Make sure to provide accurate information, as this will impact the lender's decision.
  • Lender assessment: The lender will assess your application, considering factors such as credit history, income, and affordability. Each lender has their own criteria, so don't worry if you have bad credit—we work with lenders who specialise in helping individuals in different circumstances.
  • Approval and funds: If approved, the lender will provide you with the approved credit limit. You can access the funds as needed, up to the agreed-upon limit.

How does a line of credit work?

A line of credit operates similarly to a credit card, but with some key differences. Here's how it works:

  • Credit limit: You're assigned a maximum credit limit. This represents the total amount of funds you can borrow from the line of credit.
  • Accessing funds: Once you have an approved line of credit, you can withdraw funds as needed, up to the assigned credit limit. You can use the funds for various purposes, such as paying bills, emergencies, or making purchases.
  • Repayment: When you borrow from the line of credit, you'll be required to make minimum monthly payments.
  • Revolving nature: As you repay the borrowed amount, those funds become available again, allowing you to borrow from the line of credit repeatedly. This flexibility makes it convenient for managing ongoing expenses or unexpected costs.

Does a line of credit affect your credit score?

Yes, a line of credit can impact your credit score, both positively and negatively. Here's how:

Positive impact:

  • Building credit history: Responsible use of a line of credit can help establish and build your credit history, especially if you have limited credit information.

Negative impact:

  • Missed payments: Late or missed payments can negatively affect your credit score. It's important to make payments on time to maintain a healthy credit profile.
  • High credit utilisation: Excessive borrowing from the line of credit can indicate financial instability, leading to a lower credit score. Aim to keep your credit utilisation ratio (credit used versus credit available) below 30% to maintain a healthy score.

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

While both a line of credit and a loan provide access to cash, they differ in several ways:

  • Flexibility: A line of credit offers ongoing access to money, allowing you to borrow multiple times as long as you stay within the assigned credit limit. A loan, on the other hand, provides a lump sum upfront, and once repaid, you need to reapply for a new loan.
  • Interest charges: With a line of credit, you only pay interest on the amount you've borrowed. In contrast, with a loan you are charged interest on the entire loan amount, regardless of how much you've used.
  • Repayment: A line of credit typically requires minimum monthly payments which can vary. Loans, however, typically have fixed monthly payments, spreading the repayment over a pre agreed term.
  • Purpose: A line of credit is suitable for ongoing expenses, emergencies, or cash flow management. Loans, on the other hand, are better for specific purposes, such as purchasing a car or financing home improvements.

What are the pros and cons of credit line loans?

Credit line loans have their advantages and disadvantages. Let's explore them:

  • Flexibility: A credit line loan allows you to borrow as needed, giving you financial flexibility when unexpected expenses arise.
  • Lower interest rates: Generally, credit line loans offer lower interest rates compared to credit cards, making them a more affordable option.
  • Establishing credit: If you have limited credit history, responsibly using a credit line loan can help build your credit profile.
  • Temptation to overspend: Having access to a line of credit may tempt you to spend more than necessary. Use self-control and borrow only what you truly need.
  • Variable interest rates: Some credit line loans have variable interest rates, meaning the rates can change over time. Be aware of this potential change when considering a credit line loan.
  • Potential fees: Depending on the lender, there may be fees associated with opening and maintaining a line of credit. Always review the terms and conditions before commiting.

Can I get a line of credit with bad credit?

Yes, it's possible to get a line of credit even if you have bad credit. Choose Wisely works with lenders who consider applicants in all circumstances. These lenders take other factors into account, such as income and affordability, to determine your eligibility for a line of credit. Keep in mind that interest rates may be higher compared to individuals with better credit, but it's still a viable option for accessing cash.

Credit Line Loans FAQ:

What is the typical credit limit for a line of credit?

The credit limit for a line of credit varies depending on several factors, including your creditworthiness and the lender's policies. It is best to check with the lender to determine the specific credit limit they can offer you.

Can I increase my line of credit limit over time?

In some cases, lenders may offer the possibility of increasing your line of credit limit as you demonstrate responsible borrowing and good repayment behaviour. It's important to contact your lender directly to inquire about any options for increasing your credit limit.

Can I pay off my line of credit early?

Yes, you can typically pay off your line of credit early without any penalties. However, it's essential to review the terms and conditions of your specific line of credit to confirm if there are any prepayment penalties or fees.

Can I use a line of credit for business purposes?

While personal lines of credit are primarily intended for personal use, some lenders may offer business lines of credit specifically designed for business expenses. It's advisable to explore business-specific financial products for your business needs.

Written by
Mark Grimley
Head of Partnerships & Take Control Author at Choose Wisely

Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.

Important Information.

All of the information in this guide is correct at the time of writing.

If you complete a loan search application on the Choose Wisely website, the rates shown may vary based on your personal circumstances, are subject to status and are available to those aged 18 and over. Rates available range from a minimum of 13.9%APR to a maximum of 1721%APR Representative and loan repayment periods range from 3 to 60 months.

If you need financial advice you can visit stepchange, speak to citizens advice, call the national debtline or speak to

If you've been declined, please refer to your credit report to gain an understanding of why before making further applications.
You can access your credit report for free from Credit Karma, Clearscore or Experian.