Line of Credit vs. Credit Card: Which One Is Better?

Lines of Credit and credit cards are two options for borrowers who need access to recurring funds. While they may sound similar, these forms of revolving credit are very different. It’s important to understand these differences so that you can decide which option is right for you. 

What is a Line of Credit? 

A personal Line of Credit is a flexible loan you can access anytime. You’re approved for a set borrowing limit and can withdraw any amount up to that limit as needed. Depending on your lender, you might receive the funds via direct deposit, ATM withdrawal, or debit card — although direct deposit is the most common. 

As long as you pay back what you withdraw from the Line of Credit, it stays open, and you can continue to tap into it whenever you need extra money. This makes a Line of Credit ideal for long-term use when you know you’ll need ongoing access to funds. 

Line of Credit vs. credit card 

Similar to Lines of Credit, credit cards are a form of revolving credit. Credit card companies approve you for a predetermined credit limit, and you can spend up to that amount using your card. 

While Lines of Credit and credit cards are similar, they have several key differences. 

1. Typical uses 

You can technically use a credit card or Line of Credit in whatever way you please. However, generally speaking, people tend to use Lines of Credit for big-dollar items or large ongoing expenses, such as: 

• Home remodels 
• Vehicle repairs 
• New appliances 

Credit cards, on the other hand, are often used for everyday spending, such as groceries, gas, or dining out. 

2. Accessibility 

Credit cards are widely available from a variety of lenders, but they tend to have strict credit score requirements. A Line of Credit from a direct lender might require more income documentation, but you can typically qualify without a strong credit history. 

3. Borrowing amounts 

Lines of Credit tend to offer higher borrowing limits, although this will depend on your lender and financial situation. For example, a borrower with an excellent credit score could be eligible for a high-limit credit card, while someone with poor credit may only qualify for a $500 limit. 

4. Interest rates 

Credit cards tend to have the highest interest rates of any type of credit line. According to Forbes, the average credit card interest rate is 28.75%, compared to around 10% for personal Lines of Credit. 

But even if your interest rate is higher, you’re only charged interest on the amount of credit used, not the entire credit line. 

5. Rewards and incentives 

Credit cards incentivize you to spend money. They often offer points or cash back for every dollar you spend. Most credit card companies also have special sign-up bonuses where you get so many bonus points if you spend X amount of dollars within 3-4 months of signing up. 

Lines of Credit don’t offer rewards or incentives, but this could be a good thing. There’s no temptation to borrow more than you need just to earn a reward. 

6. Accessing funds 

Credit card companies make it as easy as possible to spend their money. You simply swipe, insert, or tap your credit card during checkout, and that’s all there is to it. 

With a Line of Credit, you typically request funds from the lender and receive the amount via direct deposit. 

7. Potential fees 

Lines of Credit and credit cards both have fees and charges attached to them. Fees vary by lender, but may include registration fees, late payment fees, and annual maintenance fees. Credit cards often tack on foreign exchange fees and hefty cash advances fees. 

Pros and cons of a personal Line of Credit 

Pros 

• Easy application process 
• Competitive interest rates 
• You only pay interest on what you borrow 
• Your credit line stays open as long as necessary 
• You can use the money anywhere 

Cons 

• Variable interest rates could increase 
• Could be harder to qualify for 

Pros and cons of a credit card 

Pros 

• Convenient way to shop 
• Potential rewards and cashback incentives 

Cons 

• High interest rates 
• Costly late fees and penalties 
• You must shop where credit cards are accepted 

FAQs about personal Lines of Credit 

Does a Line of Credit affect my credit score? 

If your lender reports your payment activity to the credit bureaus, a Line of Credit could affect your FICO score. 

Can I use a Line of Credit to pay off credit card debt? 

You can use a Line of Credit for anything, including consolidating credit card debt. This may be beneficial because Lines of Credit typically have lower interest rates than credit cards. 

Is it easier to get approved for a Line of Credit or a credit card? 

It depends on the lender. In general, a Line of Credit application requires more documentation of your income and employment, while most credit card companies base their approvals on credit checks. 

Apply for a Line of Credit

Bottom line: Is a Line of Credit or a credit card better? 

Lines of Credit and credit cards both offer quick and easy access to a recurring line of funds. Which one is better for you depends on your needs and preferences. As with any type of loan, it’s important to weigh the pros and cons of each option and consider your financial situation when making your decision. 

Advance America Lines of Credit 

If you want a flexible loan with an easy application process, consider a Line of Credit from Advance America. We work with all types of credit scores and offer credit limits up to $3,000 in some states. 

Applying takes just a few minutes, and we offer same-day funding when you apply before 10:30 AM EST. 

Apply now