What are unsecured lines of credit?

These are open-ended loans that you can use for any purpose. They are revolving accounts, much like a credit card. You can use the line of credit whenever you need money. But there is a cap on the maximum amount you can borrow. You can pay back the money within a specified period.

How do unsecured lines of credit work?

Upon approval for an unsecured credit line, you will often receive checks that will allow you to draw on the line of credit whenever you need to. Unsecured lines of credit give you an uninterrupted cash flow whenever you need it. Therefore, it is an excellent option when you are not quite sure how much money you might need for your on-going projects such as home renovation, car repairs, or education.

An unsecured line of credit is typically a revolving credit line where you use what you need. Then, like with any other credit line, you are charged interest every time you borrow money and if you default, interest and penalties will accrue. Interest rates are quite competitive with most unsecured credit lines.

What are the different types of unsecured lines of credit?

There are both secured lines of credit and unsecured lines of credit. The typical example of an unsecured line of credit is a credit card.

A secured line of credit is always backed by an asset of the borrower. For instance, a home or a vehicle. If the borrower fails to pay off the loan, then the lender can foreclose or liquidate the property. The typical examples of secured lines of credit are mortgage, a home equity line of credit, an auto loan.

What are the benefits and drawbacks of unsecured lines of credit?

Like 2 sides of a coin, unsecured lines of credit also have benefits and drawbacks. Let’s know the benefits of unsecured lines of credit first.


  1. You have quick access to money
  2. You can use them during emergencies
  3. You can get overdraft protection in some cases


  1. You could be sued in the event of loan default
  2. Your credit score will drop for delinquent accounts
  3. You could be charged late fees, fines, penalties for late payments

What are the benefits and drawbacks of secured lines of credit?

Let’s first discuss the benefits of secured lines of credit.


  1. They come with a low-interest rate as the risk factor is almost nil.
  2. They have a high credit limit so you have greater access to money
  3. It’s comparatively easy to qualify for secured lines of credit

Now, let’s look at the drawbacks of secured lines of credit.


  1. You could lose your collateral in the event of loan default
  2. Your credit score will drop when you fail to repay the loan

Who offers unsecured lines of credit?

Different banks and financial institutions offer unsecured lines of credit to consumers. You just need to check their official websites to know the rate of interest, the application process, eligibility criteria, etc.

What credit score should you have for a line of credit?

You should have a good credit history to qualify for an unsecured credit line. You will never be granted an unsecured credit line if your credit score is poor because the lender is taking a greater risk if you default. There is no collateral against the loan. This means if you default, the lender can’t foreclose your home or car for repayments.

Usually, a 680 plus credit score can help you qualify for unsecured lines of credit.

What if you can’t pay off unsecured lines of credit?

Unsecured lines of credit are not free money. If you can’t pay off unsecured lines of credit, then lenders can charge late fees, fines, and penalties. They can report late payments and missed payments to your credit report, which will pull down your FICO score. They can also assign your delinquent accounts to debt collection agencies who can file a lawsuit against you.

How to get debt relief for unsecured lines of credit

There are various ways to get debt relief for unsecured lines of credit. Some of them are discussed below.

  1. You can create a budget to save money and pay off your accounts
  2. You can settle your delinquent accounts to lower your outstanding balance.
  3. You can consolidate your past due accounts to lower your interest rates

Click here to understand the debt relief process in detail

Last Updated on: 21 May 2020

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