What is a line of credit?
This line (also credit line) is a term from the banking sector that is used for credit types. For loans that can be drawn on repeatedly by the borrower up to a maximum amount of a varying amount within the credit term (revolving credit). This line determines the upper limit of a credit latitude, up to this line the bank grants the overdraft of the current account.
How is the credit line determined?
If someone wants to take out a loan, a regular income is often a basic requirement. The credit line is calculated based on three times the value of income. The account can be overdrawn up to this line, whereby this overdrawn interest has different interest rates depending on the bank. However, financial experts advise against long-term overdrafting of the account, since high interest rates can arise in the long term due to the variable interest rate on which a credit line is based. They need to make the crdit limit out of reached.
What role does Credit Bureau play?
In order to be able to get a loan at all, the bank obtains information about Credit Bureau. With the help of Credit Bureau and the current data, a base score is determined on which the creditworthiness is based. A procedure is used to calculate a probability that a loan will be repaid by the potential borrower. This determined value is a decisive criterion for the bank so that the credit line can be determined. This value can be influenced by a potential borrower in such a way that self-assessment is carried out before the application is submitted to Credit Bureau. With this insight and up-to-date data, corrections can be made so that the granting of a loan stands in the way.