Credit line: How it influences your credit

The term credit line refers to the upper limit up to which a loan can be drawn down. Instead of a credit line, it is often referred to as a credit line or, in banking jargon, as a credit facility. Here are some tips about licensed moneylender Singapore Cash Mart for an easy personal loan transactions.

However, all the terms refer to the same thing: the financial framework granted by the lender. You can draw on a loan up to this amount, but you can also use it to a lesser extent. You can usually find the right loan for your requirements by comparing loans. Occasionally, however, the term credit line also refers to the total amount of all loans of a bank customer, although this use is comparatively rare.

A credit line is not tied to fixed terms or fixed repayment installments. Once it has been granted, a bank customer can use it at any time – provided that the loan is repaid regularly.

For which types of credit are there credit lines?

The most common type of credit line is the overdraft facility for checking accounts. Here, the credit line indicates the amount of the overdraft facility granted. There are also credit lines for current account overdrafts, guarantee credits and occasionally also for Lombard credits. As a rule, credit lines are only set for current accounts; as a rule, these are current accounts.

Credit cards are an exception: Here, too, there is a credit line – namely the monthly credit limit – without the card being necessarily linked to a current account. Another special feature here is that there is usually no interest to be paid on the credit line.

How is the amount of the credit line determined?

The amount of the credit line granted can be freely determined by financial institutions; there are no binding legal regulations. Banks are therefore not obliged to grant a customer a credit line. The amount at which a bank determines the credit line depends on the incoming payments on the corresponding account. However, banks hardly ever make their exact calculation methods public.

The rule of thumb for private customers is that the maximum amount of the credit line is three times the regular incoming salary. However, institutions often only grant credit lines that correspond to approximately one month’s salary.

A regular receipt of money is therefore a prerequisite for a credit line. However, which incoming payments are taken into account when calculating the credit line differs from bank to bank. Some institutions only include constant incoming payments in the calculation, others only payments that are named as salary, wage or pension – this can pose a problem especially for freelancers. Still other institutions generally evaluate all incoming payments when determining the credit line.

The following payments may influence the amount of the credit line granted:

  • Wage or salary payments
  • pension payments
  • alimony payments
  • rental income

If the incoming payments in your case are not sufficient for a credit line of the desired amount, you should seek a consultation with your bank. Many financial institutions grant a higher credit line if you can prove additional assets or expressly point out additional income that has not been taken into account.

Credit lines are granted not only to private individuals but also to companies. Just as the income of natural persons is primarily decisive for the amount of the credit line, regular incoming payments are also decisive for companies. Usually, therefore, companies have more credit leeway than private individuals.

Terminology: Credit limit, upper credit limit, credit line: What is what?
The terms credit limit, credit ceiling and credit line are often used in connection with the credit line – often even as a synonym. This is not always correct. The individual terms mean the following:

Credit limit: This is in fact a synonym for the credit line, i.e. the limit within which a revolving credit can be drawn upon.

Credit limit: In banking, this is the term used to describe the highest possible loan amount that a lender would grant to a customer. The credit limit is usually linked to the creditworthiness of the individual customer.
Credit limit: This term also generally refers to the highest possible credit amount that can be granted to a borrower on the basis of his creditworthiness. The credit line is usually determined on the basis of the credit limit. In the business world, the term credit limit has another meaning: Here it refers to a sum insured, i.e. in the case of supplier credits, for example, the cover provided in the event of default.


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