Line of Credit (LoC): Definition, Significance, and Hybrid Bank’s Solution
The benefits of good credit ratings is often among the first things that come to when discussing this subject. Most people are willing to understand how credit scores work and make an active effort in positively influencing them only if they are aware of their gains. In this context, the fact remains that although the benefits of a high credit score are manifold — ranging from low interest rates to good-conditioned loan limits — certain specific consequences remain more influential than others. This article shall discuss one such factor, namely Line of Credit (LoC), while highlighting its significance over other forms of loans and specifying the extent to which LoC affects credit scores.
What is ‘Line of Credit’ and Why Does it Matter?
At the outset, it’s important to bear in mind that the type of the user’s acquired credit impacts at least 10% of their credit score. Line of Credit (LoC) is a particular form of ‘revolving credits’, offered mostly by traditional lending institutions, but also by progressive crypto-based, decentralized lending platforms such as Hybrid Bank.
Offered to both individuals and enterprises, an LoC functions on predetermined credit limits that the user is free to access repeatedly, as long as the account is open and the ‘minimum due’ is cleared regularly. Lines of Credit are open, meaning that the user can take out money as and when required until the limit is reached. In fact, once the previous dues are repaid, the limit becomes essentially non-functional, enabling the user to continue availing credit. This is in contrast to traditional loans where a certain amount is loaned as a one-time loan and the borrower pays back in principle and monthly interests over a predetermined period.
Lines of Credit and Credit Scores
In traditional lending systems, while accessing lines of credit increases an individual’s credit score, they are only extended to those with high credit scores. In blockchain lending platforms like Hybrid Bank, however, lines of credit can be accessed by anyone with an account and in turn, successfully repaying the outstanding balances will generate higher credit scores.
Navigating through the financial terrain of line of credit has both immediate and deeper impact on the credit score. For one, lines of credit tend to have higher interest rates. Thus, once a user can show successful repayment of lines of credit, lenders are more confident in the user’s financial awareness and abilities.
The high interest, however, is not a deterrent. In fact, interests on lines of credit are only on the amount the user draws for usage and not on the entire line of credit. Moreover, the minimum repayment amounts are much smaller than in traditional loans, while both the repayment amount and the frequency can be adjusted by the borrower according to their abilities.
Hybrid Bank’s Offering
Hybrid Bank acknowledges the risks associated with lines of credit, especially in the blockchain ecosystem, like bad bond recovery rates and malignant debts. In order to avoid these outcomes, they are currently offering micro-lending services for cryptocurrency holders that range from $1,000 to $10,000. With their total supply of tokens ranging up to 10,000,000,000, Hybrid Bank assures that their lines of credit have enormous volume potential.