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Line of Credit vs. Credit Card: Everything You Need to Know

December 10, 2019 by Daniel Azzoli

Stack of credit cards on a table

No two people’s financial situations are the same. Because of this, the financial choices you make will reflect your particular goals and circumstances, like when you’re considering applying for a line of credit or a credit card. And whenever it comes to making financial decisions, it’s important to educate yourself on the products available to you so you can get a better idea of which one is best suited to your particular situation.

Lines of credit and credit cards are two fairly common financial products, which may seem quite similar to each other on the surface. The truth is, there are some key distinctions between the two that are important to understand if you’re looking to apply for one or the other. We’re going to look at some of the differences between a line of credit and credit card to help you make an informed decision.

Line of Credit Essentials

A line of credit is a type of revolving credit that lets you borrow money against a loan limit determined by the lender. It can provide the flexibility you need to act fast when you come up against an unexpected situation, whether it’s in your personal life or for a business.

You might consider using a line of credit loan when:

  • You need a cash advance. A line of credit may not have a cash advance fee, and it may be used when you need cash for a big-ticket purchase.
  • If bonus rewards aren’t important to you. Lines of credit generally don’t come with the bonus rewards and perks that credit cards come with. However, in many cases, you’ll be charged an annual fee for the perks of these cards.
  • If you need a higher limit. Generally, you may be able to secure a higher credit limit with a line of credit vs. a credit card.

Person using silver laptop

While the requirements to be approved for a line of credit will vary from lender to lender, there will likely be some overlap. For example, to qualify for a personal line of credit with MoneyKey, you must:

  • Be of legal age to contract in your state
  • Be a US citizen or permanent resident
  • Be a resident in the state where our product is offered
  • Have an active bank account
  • Have a regular source of income
  • Have a valid contact number and an active email address

There are some types of lines of credit that are intended for personal use, while some are intended for businesses. Personal lines of credit are meant to give you access to credit on a revolving basis for personal use. These are often best served as a financial safety net for when you’re facing an unexpected emergency expense you can’t cover with your savings.

The Benefits of a Credit Card

A credit card is similar to a line of credit in that it’s a revolving form of credit where you’ll be given a monthly limit. You can spend what you need within that limit, and then you pay back what you’ve spent that month.

You may want to consider using a credit card if:

  • You’re looking to earn benefits and rewards. While the type and return on the rewards you can earn from a credit card will vary, you can earn cashback or travel rewards simply from making everyday purchases on your credit card. However, you should never spend more than you can afford on your credit cards and always try to pay off your credit card statement in full by the pre-determined due date.
  • You’ll often have a grace period before interest starts accruing. When you buy something on your credit card, there’ll often be a grace period where you’ll have the opportunity to pay off what you owe before you’re charged interest. This grace period must be at least 21 days.

empty brown wallet on wooden table

If you’re looking to applying for a credit card, there are a few steps you should take. These include checking your credit score, figuring out what kind of card you’ll need, and determining where you want to apply for a card.

The Difference Between a Line of Credit and a Credit Card

We’ve already gone over some of the differences between a line of credit vs. a credit card, but let’s recap them and go over a few additional differences.

A line of credit will generally:

  • Not include large annual fees
  • Give you a higher limit than a credit card
  • Be well-suited for business expenses
  • Have interest built into its repayment plan

A credit card will generally:

  • Offer rewards and benefits
  • Come with an annual fee, specifically if it offers significant rewards and benefits
  • Be better suited for everyday purchases
  • Have a cash advance fee

Line of Credit vs. Credit Cards: Which Works for You?

When deciding whether to apply for a line of credit or credit card, make sure you’re asking yourself the right questions. What do you need this money for? How will you use it? Will you be able to make your payments on time? Consider the different factors we’ve listed and try to make an informed decision.

computer keyboard, wallet, and coffee mug on table

There may be certain factors that could make it harder for you to be approved for a line of credit or credit card. This could be things like your income being too low, not being able to meet the requirements of the financial institution providing the loan, or your credit score being too low.

If you have poor credit but are looking to apply for a line of credit, there may be lenders that provide online loans and don’t weigh your credit score as heavily in the approval process.

Learn More about Lines of Credit, Credit Cards, and More

You’ve got a lot to consider when you’re looking into all of the line of credit and credit card options out there, and we hope this article has helped! The important thing to remember is to continue to learn as much as you can in order to make responsible financial decisions.

If you’re considering applying for a line of credit to act as a safety net for when you’re facing an unexpected emergency expense and don’t have the savings to cover it, visit our Financial Articles resource hub to learn more!

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Not all applications are approved; duration of approval process may vary. Credit limits/loan amounts are subject to further verification criteria. If you are a returning customer, loan amounts may vary.

*If approved, any requested funds may typically be deposited into your bank account the same business day; timing of funding may vary by product and state. The date and time funds are made available to you by your bank are subject to your bank's policies. For specific funding cut-off times, click here.

**You may request a draw from your Line of Credit at any time, so long as you have available credit and your account is in good standing. In the State of South Carolina, you can withdraw the total credit available to you all at once, or in smaller amounts over time as you need it, with a required minimum draw of $610.

As you move through your credit journey, your account may become eligible for reduced charges and/or increased credit limits/loan amounts based on good payment history over time. You will receive notices, as applicable, regarding your individual circumstances and eligibility.

Depending on your state of residence, applications submitted on this website may be originated by one of several lenders, including: CC Flow, a division of Capital Community Bank (CCBank), a Utah Chartered bank, located in Provo, Utah, Member FDIC. The CC Flow Line of Credit is provided by CC Flow. Additionally, CC Flow maintains critical control over loan origination, underwriting approvals, and regulatory and compliance oversight management. MoneyKey is an authorized servicer of CC Flow. This means the CC Flow Line of Credit is available through MoneyKey and you will maintain your CC Flow Line of Credit account through MoneyKey.

Product availability varies by state. To see loan products offered in your state of residence, please visit our Rates and Terms page.

MoneyKey – TX, Inc. is licensed as a Credit Access Business (CAB), License No. 16641-62815, by the Office of the Consumer Credit Commissioner and registered as a Credit Services Organization (CSO), Registration No. 20110150, by the State of Texas. All loans for which MoneyKey acts as a CSO/CAB are funded by an unaffiliated third-party lender and serviced by MoneyKey. In the State of California, MoneyKey – CA, Inc. is licensed by the Department of Financial Protection and Innovation pursuant to California Deferred Deposit Transaction Law License No.1004516.

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