A line of credit, sometimes called a bank line, is the most you can borrow under a revolving credit arrangement with a credit card issuer, bank, or mortgage lender.
When you borrow against a line of credit, you pay interest on the amount of money you actually borrow, not on the available balance, or full amount you are able to borrow.
For example, if you have a $10,000 line of credit on a credit card, you may borrow as much or as little as you want up to that amount, and you pay interest only on the amount you have borrowed.
If you carry a balance of $3,000, you only pay interest on that amount, but there is still $7,000 available for you to borrow. Once you repay the amount you borrow, you can use it again.
A line of credit may be secured with collateral, or unsecured. A line of credit on a credit card is usually unsecured, for example. But if you have a home equity line of credit, your home serves as collateral against the amount you borrow.
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- Credit, Credit limit, Credit rating, Home Equity Line of Credit (HELOC), Secured credit card
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