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How to Get a Line of Credit [5 Easy Steps]

All loans aren’t created equal. When you need money, loans—including mortgages, car loans, debt consolidation loans, home improvement loans, student loans, and business loans— may be the first option that comes to mind. However, a line of credit can be a beneficial alternative.

Wondering how to get a line of credit and whether it’s right for you? Here’s a closer look at what to know about a line of credit, along with five steps for securing one.

The Difference Between a Personal Loan & Line of Credit 

A loan has a non-revolving credit limit and you can access the loan amount once. After this one-time withdrawal, you will begin making fixed principal and interest payments until it's paid off. 

A line of credit functions differently.

Similar to how a credit card works, a personal line of credit offers a set credit limit to which you have ongoing access as long as the account is paid to date and credit is available. A line of credit can also be paid back and then borrowed against again repeatedly. 

While loans provide a one-time lump sum that is usually designated for a single specific purpose, lines of credit are more flexible and can be used at any time and for just about anything.

Benefits of a Personal Line of Credit 

Perhaps one of the greatest benefits of a line of credit is how you pay interest. While interest immediately begins to accrue on the full amount with a personal loan, you only pay interest on the amount you borrow with a line of credit.

Even better–if you’re not sure how much or how often you’ll need to borrow, a line of credit may make more sense. Typical uses for lines of credit include both anticipated and unexpected life events such as vacations, emergencies, home improvement projects, overdraft protection, and cash-flow management just to name a few.

In addition to unsecured lines of credit which don’t require collateral, there are also secured lines of credit, such as a home equity line of credit. Business lines of credit are also popular because of the flexibility they offer.

5 Steps For How to Get a Line of Credit

Thinking a line of credit may be right for you? Here are the steps to take to go about getting one.

1. Know how much you want to borrow

It may be tempting to take out a large line of credit, this can get you into trouble. Instead, consider what you want to accomplish, and how much it’s likely to cost.

When running the numbers to see how much you can afford, don’t forget to factor in associated fees, which vary depending on the loan size and terms. 

2. Assess your credit score

The better your credit score, the more likely you’ll be to secure a line for the amount you want. Additionally, a higher credit score can also help you qualify for a larger credit line with better terms.

If your score is lower than the qualification requirements for a line of credit, take steps to boost your credit to improve your chances of getting approved.

3. Collect your documents

As with a loan, you’ll need certain types of documentation hand when applying for a line of credit. These include:

  • Proof of identity, such as a passport, driver’s license, or birth certificate
  • Employer and income verification, such as W-2s, bank statements, and pay stubs
  • Proof of address, such as a deed, rental agreement, and utility bills

4. Shop around

Different financial institutions have various lending options. Comparison shopping can help you ensure that you get a good deal and great service. 

Additionally, factors like institution size and location are also considerations. For example, a small local credit union may have a level of personalization that can't be replicated by a larger institution.

5. Pick a lender and apply

Applying for a personal line of credit is similar to applying for a loan. You can also get pre-qualified for a line of credit to make the process easier. If you are approved, make sure to pay attention to the terms, including the draw period. 

Get a Flexible Line of Credit Today!

Selecting the right financial partner can make a huge difference when it comes to getting a line of credit—and making the most of it. For more than 70 years, Greater Texas Credit Union has served thousands of members with a wide range of financial products and services, including lines of credit.

To learn more about our lines of credit and how they can help you reach your financial goals.

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