What is a credit line and how does it influence my credit rating?
It is not always easy for the self-employed to apply for credit. Just like private individuals who want to apply for credit, the creditworthiness of self-employed people and companies plays a decisive role in the granting of credit. Creditworthiness is used by credit institutions to assess creditworthiness. The banks perform a rating and determine the interest rate for the credit depending on the creditworthiness. The credit line has an influence on creditworthiness. It is frequently used by banks. In this article, Cash Mart Singapore moneylender offers tips on how you can find out what a credit line is and how it affects creditworthiness.
What is a credit line?
A credit line is the upper limit up to which a loan can be granted. The credit line is also referred to as a credit line, credit limit or credit limit. It is the maximum limit for a loan agreed between the borrower and the credit institution. This credit line depends on the creditworthiness of the borrower. The better the credit rating, the higher the credit line can be. A decisive criterion for the amount of the credit line is the regular receipt of money on the current account of self-employed persons and companies. If these cash receipts are correspondingly high, a high credit line can be granted. This credit line is decisive for the overdraft credit granted by the bank for the current account. In the case of self-employed persons and companies, this overdraft facility is referred to as an overdraft facility, while in the case of private individuals it is known as a overdraft facility. This is an agreed credit line. The credit line is the maximum amount that you can draw on in addition to your existing credit balance.
Agreed and tolerated credit line
The credit line distinguishes between the agreed credit line and the tolerated credit line.
The agreed credit line is the normal overdraft facility granted by the bank for the current account. This overdraft facility and its amount are contractually agreed. As the holder of the current account, you can overdraw your current account up to a maximum of the agreed credit line.
In contrast to the agreed credit line, no credit line is contractually agreed with the tolerated credit line. The bank tolerates the overdraft of the current account up to a certain limit. Businesses and the self-employed should not exceed three months overdraft.
Types of credit for which credit lines are granted
A typical loan for entrepreneurs and self-employed persons for which a credit line is granted is the overdraft facility for the current account. The credit line indicates the maximum amount up to which the current account credit can be drawn. A credit line can also be granted for guarantee credits. A guarantee facility is a guarantee or a guarantee provided by a bank for self-employed persons or companies. The bank does not pay any money, but provides a guarantee. Businesses and the self-employed can use such guarantees for various purposes. A credit line can also be granted for Lombard loans which are short-term financing and for which securities or movable property serve as collateral.
A credit line is set only for current accounts.
A credit card is an exception, here too there is a credit line. This is the monthly credit limit. In contrast to a current account credit, there is usually no interest when using a credit line for the credit card.
Determining the amount of the credit line
No legal regulations apply to the determination of the credit line. The banks are free to decide on the amount of the credit line and are not obliged to grant a credit line. Banks use various calculation methods, but very few of them make them public. Incoming payments on your current account play a decisive role in granting a credit line. Since the income of self-employed persons and companies varies from month to month, some banks may have problems with a credit line. Some banks require a constant amount of incoming funds for a credit line.
Self-employed people and companies that are experiencing a financial bottleneck because customers are not paying on time should contact their bank and talk to them. If different securities can be demonstrated, it is possible that a credit line will be granted.
The credit line as revolving credit
The credit line is a revolving credit facility. While an installment credit is usually paid into a separate account and repaid in monthly installments, the credit line applies to the current checking account. It can be drawn on on a revolving basis. This means that no application to the bank is required to use the credit line. If there is enough money in the current account, the credit line can be repaid in the meantime and then drawn on again. The user of the credit line is not obliged to make regular repayments. This revolving credit must be repaid, but unlike the installment credit, no fixed agreements apply.
The borrower can determine how he wants to repay the revolving credit. The repayment may, however, affect the amount of the credit line. If the credit line is repaid late and only with small amounts, the bank can set the credit line lower.