Line of credit vs. credit card: What’s the difference?

Personal lines of credit and credit cards are both types of revolving credit. But they differ in ways borrowers access funds and earn rewards. Learn more about how personal lines of credit and credit cards compare. 

What you’ll learn:

• Personal lines of credit and credit cards are both types of revolving credit with flexible borrowing options.

• Lines of credit offer a set amount of credit that you can borrow and repay as needed within the account’s terms.

• Credit cards offer a line of credit that you can access with a physical card or virtual card number. They also may come with different rewards and APR options.

• Lines of credit and credit cards may have different interest rates, credit requirements, fees and more.

Lines of credit, sometimes called credit lines, let account holders borrow against a credit limit and make repayments as needed within the account’s terms and conditions.

Some lines of credit, such as business lines of credit, have specific uses. Others, like personal lines of credit, tend to be for general purposes. There are also government-backed lines of credit that function in their own ways.

To access a personal line of credit, account holders might write checks or request a bank transfer. The lender typically charges interest on the outstanding balance and may charge a fee for using the account.

Lines of credit may be secured or unsecured. Secured lines of credit are backed by collateral. Unsecured lines of credit are not. A home equity line of credit is an example of a secured line of credit where the home acts as collateral.

A credit card is another type of revolving credit available from many banks and credit unions.

When you apply for a credit card, the credit card issuer reviews your creditworthiness to determine whether to extend a credit line and decide on things like your credit limit and interest rate. If approved, you receive a credit card you can use to make purchases. And at the end of each month’s billing cycle, you’ll receive a statement that shows information like how you used the card, your minimum payment for that month and what you owe in total.

Credit cards can be secured or unsecured.

Lines of credit and credit cards have similar features. But there can be some key differences in how to access credit, interest rates, fees, qualifications and rewards.

With a line of credit, you may be able to access the account using checks and bank transfers. On the other hand, a credit card gives you access to the credit limit simply by swiping, tapping or dipping your card. Virtual cards and other digital options might also be available.

Lines of credit and credit cards typically have different interest rates. And compared to credit cards, you might see lower interest rates on lines of credit.

Both personal lines of credit and credit cards may have annual fees. But you could also be charged a fee each time you use a personal line of credit.

To get a line of credit, you may need to have a checking account with the lending bank or credit union. To get approved for a credit card, you don’t have to have an existing account with the card issuer. For both options, you typically need to prove your creditworthiness.

Rewards programs set credit cards apart from lines of credit. Different types of credit cards may earn cash back, points or miles. You can redeem them for a variety of things and experiences.

Unlike rewards credit cards, personal lines of credit typically don’t offer rewards.

Lines of credit and credit cards both have credit limits, which is the maximum amount you can spend on the account. Credit limits vary based on the borrower’s creditworthiness, among other factors. In some cases, lines of credit may offer higher credit limits than credit cards, but not always.

When you should use a line of credit or a credit card depends on your circumstances. Here are a few general guidelines to consider.

Lines of credit may be helpful tools when you need a way to cover large purchases that don’t have clear-cut costs. That might include things like: 

• Renovations 

• Medical treatments 

• Weddings 

As with any type of credit, you should make sure you can afford at least the minimum monthly payment before opening a line of credit. A personal line of credit may also charge a fee each time you use it. And if you don’t pay off the full balance, the unpaid portion may accrue interest.

Credit cards can be a flexible, convenient alternative to cash. You might use a credit card to: 

• Make everyday purchases 

• Cover unexpected expenses 

• Finance a large purchase 

Remember: Many credit cards also offer rewards, while other lines of credit typically don’t. With a rewards credit card, you can get the most out of spending you’re doing anyway. You can choose a rewards card that’s tailored to your lifestyle, whether you’re a foodie who dines out regularly or an avid traveler. 

As with personal lines of credit, it’s important to make sure you use credit cards responsibly and always pay on time.

Here are a few frequently asked questions about lines of credit and credit cards.

If you’re looking for a flexible way to borrow money, a personal line of credit or credit card are two options to consider. Comparing the interest rates, fees and repayment terms could help you make the best decision when deciding on a borrowing option. No matter which option you choose, make sure you’re applying for the type of credit that’s right for your situation.

Think a credit card might be right for you? With pre-approval from Capital One, you can find out if you’re eligible for credit cards before you apply. It’s quick and won’t hurt your credit scores.

Are you new to credit or searching for your next credit card? Capital One can help:

• Check for pre-approval offers with no risk to your credit scores.

• Earn unlimited 1.5% cash back on every purchase, every day with Quicksilver or other cash back rewards cards.

• Explore credit cards you can use to build credit responsibly and earn rewards.

• Monitor your credit score with CreditWise from Capital One. It won’t hurt your credit, and it’s free for everyone.