Posted by: John S Kiernan

Lines of credit and credit cards are two very similar types of financial products that help consumers, small business owners and even large corporations access borrowed funds on an as-needed basis. In order to help you better understand the differences that do exist between a line of credit and a credit card as well as the roles each can serve in your financial life and how to choose between them, we’ve compiled a complete comparison below.

If you are interested in learning more about credit cards, lines of credit or how credit limits are set, we have more detail in our respective guides on the topic.

1. Line of Credit vs. Credit Card: Key Differences
2. Choosing Between a Credit Card & a Line of Credit
3. Ask The Experts: Extra Credit

Line of Credit vs. Credit Card: Key Differences

 

Easy to Get?Harder to get than credit cards.Secured Credit Cards are, while Credit Cards for Excellent Credit are not.

Feature	Line of Credit	Credit Card
Intended Use	Special big-ticket consumer & business expenses.	Everyday consumer & business spending.
Proof of Income Required?	Yes, usually in the form of your latest W-2 or tax return.	No, but honest documentation is required.
Secured By Collateral?	Sometimes, but not required.	Secured Cards are, while “normal,” unsecured credit cards are not.
Credit Building Impact	Reported monthly to credit bureaus	Reported monthly to credit bureaus
Credit Line	Personal: $500 - $25K Business: $1,000 - $100K	Personal: $300 - $15K Business: $1,000 - $50K
Average APR	Purchase: 13.87% Cash Advance: Same as Purchase	Purchase: 17.18% Cash Advance: 22.07%
0% Introductory APR	Rarely	0% for 6-24 months is common for people with excellent credit.
Annual Fees	Range: $0 - $50 Average: $25	Range: $0 - $495 Average: $12 (all cards) $63 (cards with annual fees)
Rewards	Rarely	Yes, 1% cash back on average
Cash Advance Fee	None	$13.05
Grace Period	None	20 – 30 days after bill is made available

Choosing Between a Credit Card & a Line of Credit

The choice between a credit card and a line of credit depends primarily on whether or not you need cash, how much you need and, possibly, what assets you have to serve as collateral.

Most people will be better off simply getting a credit card, as it’s more straightforward than opening a traditional line of credit and should be able to serve most spending and funding needs splendidly. You’ll also be able to make purchases anywhere VISA or MasterCard is accepted. Just make sure not to get a card with annual fees unless there are certain benefits (like extra rewards) that make the cost worthwhile.

It’s best to use a line of credit only if you need a significantly higher credit line than a credit card will provide (particularly if you have property to put up as collateral), or if you need to borrow actual cash for big-ticket purchases.

With that being said, verify that you’re not missing any unusually attractive credit card offers. It’s hard for a credit line to compete with 0% for 15-24 months and no fees, at least for folks looking at a short-term repayment timeline.

Ask The Experts: Extra Credit

For more insight into the distinct roles that credit cards and credit lines play in the payments landscape and overall economy, we turned to a panel of leading business and personal finance experts. You can check out their bios and thoughts below.

1. The term “credit line” seems to be far less popular and much less understood than “credit card” – why is that?
2. When do you recommend consumers consider credit lines?
3. What is the biggest potential pitfall you recommend consumers watch out for when using / considering credit lines?
4. How do business lines of credit differ in terms of the above issues?

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• Irene Leech Associate Professor of Consumer Studies at Virginia Polytechnic Institute and State University
• Sharon M. Danes Professor and Family Economist at University of Minnesota
• Luke Dean Personal Financial Planning Professor at Utah Valley University

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