Line of Credit vs Credit Card: Which One's Best?

Yes, a traditional credit card is, in effect, a line of credit. But a personal line of credit most certainly is not the same thing as a credit card. Though they’re both revolving credit accounts that you can tap into to help cover expenses as needed, they work in different ways. For example, you can open a line of credit without any payment card attached to it.

If this sounds a bit confusing, think of it this way: Though a “line of credit” may refer to a specific lending product, you may hear others use it as an umbrella term for several different types of credit lending options that allow a customer to repeatedly draw funds, as needed, and repay with interest or fees. Credit cards and personal lines of credit are two types of lines of credit available to consumers. Other types include HELOCs, a type of secured line of credit for homeowners;¹ and overdraft lines of credit, which trigger the bank to cover expenses if, for example, you make a purchase that exceeds your current checking account balance.²

A personal line of credit and a credit card do have some traits in common: At a high level, they both essentially lend you money and require you to pay it back with interest. Their differences, though, lie in a few key nuances, such as:

• Interest rate: A personal line of credit tends to offers a lower interest rate than a credit card. How big that gap is depends on several factors, most notably your credit score. The average APR on credit cards has hovered above 20% since November 2022.³ For a line of credit, you may find single-digit interest rates, as well as some that are higher, depending on the lender and your financial situation.⁴ As a general rule, the stronger your credit score, the lower the rate you’ll qualify for.
• Interest-free grace period: Some credit card companies offer an interest-free grace period between the end of the billing cycle and your payment’s due date. Any portion of your balance that is not paid off by the due date will begin to accrue interest.
• Rewards and benefits: Personal lines of credit do not offer rewards or benefits; credit cards usually do. Credit card incentives may include cash-back rewards or points-earning programs for travel, entertainment, and other purchases. Cards may also offer additional benefits, like statement credits for specific purchases or travel perks like complimentary airport lounge access.
• Credit limit: The limit for a personal line of credit may depend on your credit score and financial situation. Credit cards tend to have lower credit limits, though some cards have no preset spending limits.⁵
• How to access funds: A personal line of credit offers more flexibility with regard to how you can use funds. For example, you can usually write a check, use a bank card, or make cash withdrawals.⁶ With a credit card, you’ll need to use the card in person or enter card details online. You may be able to get a cash advance, but this option usually incurs additional fees and higher APRs.^7,4
• Application requirements: Credit checks are performed with both applications.

Differences Between Personal Lines of Credit and Credit Cards

Though a personal line of credit might be a less common lending choice than a credit card, they offer benefits like more flexibility with regard to how you can make payments. For example, there’s no separate cash advance fee or additional APR for withdrawing cash. Still, there are downsides to consider.

Personal Line of Credit Pros and Cons

Credit cards offer a convenient alternative to using cash on an everyday basis. From bagel shops and clothing boutiques to supermarkets and golf courses, credit cards have become a ubiquitous payment method. According to a 2021 report from Experian, Americans maintained, on average, 3.9 credit cards, as of 2023.⁸

Despite their popularity, there are advantages and disadvantages to be aware of when using a credit card.

Credit Card Pros and Cons

With so many credit options to choose from, how do you know which one matches your needs and your financial future?

When it comes to everyday spending, credit cards are usually a better option than a line of credit. Given the fact that lines of credit begin to accrue interest immediately after a purchase is made, it usually doesn’t make sense to draw on a line of credit when your to-do list includes filling up the car with gas, buying clothes and school supplies for the kids, and doing the grocery shopping (after you treat yourself to lunch, of course). With the various incentives offered – especially cash back or points as rewards – credit cards can be a good option for everyday purchases.

On the other hand, when you need to make a larger purchase, or perhaps require money to cover an emergency, a line of credit may prove useful. Surprise home repairs? Ongoing medical treatments that come out of your pocket? Unsure how much these bills will amount to at the end? A line of credit may work out as the better play here, since they often carry more favorable interest rates and higher credit limits. They also allow you to make withdrawals as the bills come in and the total expenditure comes into clearer focus, plus you pay interest only on what you use.