Personal Lines of Credit Vs. Credit Cards

When you need to finance important purchases, you may need access to additional funds. Credit cards and personal lines of credit are two popular approaches to handling this problem.

Though there are many similarities between credit cards and credit lines, there are also some crucial differences.

This article will help you understand how personal lines of credit differ from credit cards and how to know which option is right for you.

What is a personal line of credit?

A personal line of credit is a type of revolving credit account that you can access for a fixed amount of time.

When you borrow money from a lending institution through a personal line of credit, you’re approved for a specific amount of money, known as your credit limit.

Whenever you make a purchase with your personal line of credit, your credit limit is reduced by the amount of that purchase. When you repay what you’ve used, your credit limit goes back up to its original value.

Say, for example, that you have a $20,000 line of credit, and you buy a furniture set for $2000. Your credit limit would then be $18,000 ($20,000 - $2000), and you would owe interest on the $2,000. When you paid back the $2,000 plus interest, your credit line would once again be $20,000.

In general, a personal line of credit is only available for a certain period, which is known as the draw period.

What is a credit card?

A credit card is a card issued by a financial institution, or an entity with the ability to extend credit, which allows you to make purchases using a revolving line of credit.

With a credit card, you have a set amount of credit you can access. As you use your account to make purchases, you’ll accumulate a balance that must be paid off. If you don’t pay your balance off in full by the due date, interest will be charged on your remaining balance. The amount of interest charged will depend on your card’s APR.

Information about your balance, what you owe and what your minimum payments are will be communicated through a billing statement, which you’ll receive at the end of the card’s billing cycle.

How are a personal line of credit and a credit card similar?

Both credit cards and personal lines of credit are types of revolving debt. With revolving debt, you have access to a specified amount of funds. When you use those funds to make purchases, you pay back what you owe to avoid interest charges.

Revolving debt is distinct from installment debt, such as a personal loan, in which you’re given a lump sum all at once that you pay back in fixed, monthly installments.

If you make consistent repayments, both a credit card and a personal line of credit can be a way to build your credit by helping you establish a positive payment history.

How are a personal line of credit and a credit card different?

The biggest difference between a personal line of credit and a credit card is how you access your funds.

With a personal line of credit, you may be given a special card to access it, or you may need to transfer the funds from the personal line of credit into one of your bank accounts. On the other hand, once you get your credit card in the mail, you can carry it in your wallet and use it as needed.

In addition, personal lines of credit don’t have grace periods, so interest begins to accrue immediately when you use funds from that account. Most credit cards have a grace period where you don’t accrue interest if you pay your full balance by the due date.

Use of personal lines of credit can be limited to the draw period whereas credit cards can be used for as long as the account remains open.

Credit cards may also have rewards programs that offer users benefits for spending in certain categories, such as restaurants or hotels.

How does a personal line of credit and a credit card affect credit?

Applying for either a personal line of credit or a credit card may cause a temporary decline in your credit score due to the hard credit inquiry that creditors perform.

On the other hand, managing either of these accounts responsibly by making all your payments on time and keeping your credit utilization low will do a lot to bolster your creditworthiness over the long term.

If you miss payments on either a personal line of credit or a credit card, though, this will have a negative effect on your creditworthiness.

Choosing Between a Personal Line of Credit or a Credit Card

When it comes to deciding between credit cards and a line of credit, much of it comes down to your unique circumstances.

A personal line of credit will generally have a lower interest rate than a credit card but will also require a higher credit score. Both are flexible options, but personal lines of credit may have a draw period, whereas a credit card can remain active indefinitely. Either one could be a feasible choice, depending on the time period over which you’d like to keep access to credit.

By and large, a personal line of credit is useful for financing large purchases like home repairs or medical expenses, while credit cards tend to be more popular for everyday expenses like food and gas.

How long does it take to get approval for a personal line of credit or a credit card

The amount of time it takes to get approval for a personal line of credit or a credit card can vary depending on the creditor and the individual’s credit history.

Disclaimer: Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan,apply online today.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

Additional Resources

  • Start your personal loan application now!

  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.