Personal Line of Credit vs. Credit Card: Which Is Right for Me?

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When trying to decide whether to choose a personal line of credit versus a credit card, it’s important to understand the differences between them. After all, what might work for one person might not work as well for another.

Personal lines of credit and credit cards are both types of revolving credit. This means you can borrow against them whenever you need — up to a certain limit. This makes them convenient for anyone who needs consistent access to funds rather than a lump sum amount.

But even though they’re similar, they work differently. Here’s everything you need to know about credit cards and personal lines of credit, and when each might be the better choice for you.

Personal lines of credit compared to credit cards

Personal lines of credit, or PLOCs, and credit cards let you borrow money whenever you need it. Both types of credit have a maximum credit limit, which represents how much you can borrow. Once you reach the limit, you’ll need to start paying down the balance before you can borrow any more money.

In most cases, you’ll need to have good credit to qualify for both types of financing. This is especially important if you’re applying for a rewards credit card or unsecured PLOC. Your credit score can also affect how high a credit line you’re offered.

Although PLOCs and credit cards are similar, there are some key differences you’ll want to consider before applying for one over the other.

Application requirements

You can apply for either a personal line of credit or a credit card at a branch, online, or over the phone. When applying, you will typically need to provide some basic personal and financial information, such as your:

• Social Security number
• Driver’s license or state ID
• Date of birth
• Physical address
• Proof of income or employment — like pay stubs, W-2s, or bank statements

The requirements for a personal line of credit versus a credit card may be slightly different. Here’s what you can typically expect with each:

• Line of credit: To get a PLOC, you’ll need the above information, as well as good or great credit (670 to 850 FICO). Many lenders also require proof of income showing that you can afford the new line of credit. Lenders may also ask you to provide documents indicating any assets and current debts.
• Credit card: Requirements vary immensely based on the credit card issuer, but they’re often more lenient than PLOCs. Besides asking for identifying and income information, some credit card companies will also ask whether you rent or own your home. You’ll also need a specific minimum credit score to qualify for a card with the best rates and rewards.

Credit terms, conditions, and limits

A PLOC and a credit card both have their own interest rates, credit limits, and repayment terms. Here are the major differences:

• Line of credit: Most personal lines of credit have a variable annual percentage rate (APR), which is based on your credit score. The better your score, the lower the APR. The credit limit depends on your credit profile as well. PLOCs often have a maximum limit of $100,000, but some lenders may offer higher amounts.
• Credit card: Most credit cards come with higher variable interest rates than the rate you’d get with a line of credit. As with a PLOC, the better your credit, the lower your interest rate. Also, credit cards usually have lower maximum limits than PLOCs — with the average limit coming in at around $30,000.

One other point to consider when choosing between a personal line of credit and a credit card is the repayment terms.

Some lines of credit come with a draw period — this is how long you can borrow against the account. The draw period usually lasts several years. During this time, you can choose to make interest-only payments on the amount you borrow or pay toward the principal and interest.

After the draw period ends, you’ll no longer be able to borrow money from the line of credit. Instead, you’ll start making monthly payments until you repay the full balance.

Credit cards are more open-ended. As long as you make your minimum payments, you can continue to use the card indefinitely. But if you carry a balance from one month to the next, you’ll incur interest charges.

Impact on credit score

Several factors go into your FICO credit score, including:

• Payment history (35%)
• Total amount owed or credit utilization (30%)
• Average length of credit history (15%)
• Credit mix (10%)
• New credit accounts (10%)

When you apply for a personal line of credit or a credit card, the lender will perform a hard credit check to determine your creditworthiness. This may cause your score to drop by a few points, though it should bounce back over time.

On the other hand, the new account could boost your credit score by adding to your credit mix and lowering your overall credit utilization. This depends on the types of accounts you already have, as well as your new credit limit.

Whether you get a PLOC or a credit card, try to keep your balances (and overall credit utilization) low. Also, make sure you pay on time every month as missing a payment could hurt your credit score.

When it comes to eligibility, credit-score requirements vary. For example:

• Line of credit: Most lenders require borrowers to have good credit or better to qualify. Your credit score will affect your credit limit and rates.
• Credit card: You may need good or excellent credit to get a credit card with rewards or a low interest rate. However, some companies offer credit cards to borrowers with less- than-stellar credit.

Financing with a line of credit

A line of credit is a type of revolving credit that you can borrow from repeatedly for a set time until you reach your credit limit. Most personal lines of credit are unsecured. This means you do not have to put up collateral — like a paid-off vehicle or your home — to qualify. They also typically have variable interest rates that fluctuate based on market conditions.

Like personal loans and credit cards, some PLOCs can also be secured. Secured lines of credit sometimes come with higher credit limits than unsecured options. Your limit will depend on your credit profile and the lender, but it could be $100,000 or more.

Some lenders offer lines of credit with set repayment terms that limit access to the funds to a few years. Others have indefinite repayment terms, meaning you can borrow from them as long as you continue to pay them off.

When to use a line of credit

You may want to use a personal line of credit if you need access to cash for unpredictable or ongoing expenses. Common uses for lines of credit include:

• Making large purchases
• Renovating or updating your home (PLOCs are often cheaper than home improvement loans)
• Paying for expensive medical procedures
• Handling business expenses as an entrepreneur
• Debt consolidation
• Moving costs

If you’re debating between getting a personal line of credit or a personal loan, Credible could help you pick the right option.

Financing with a credit card

Credit cards are another common form of revolving credit — in fact, around 71.5% of Americans own at least one, according to a 2021 Federal Deposit Insurance Corporation survey. With a credit card, you can borrow up to your credit limit whenever you need it.

Typically, you’ll have to make a minimum monthly payment on the credit card balance. This will include the principal balance plus any applicable interest or other fees. If you pay off the entire balance every month, you can usually avoid interest charges. Your credit score and credit history will affect the card’s APR and your credit limit.

When to use a credit card

Credit cards can be good for small, everyday purchases like groceries, entertainment, clothing, or paying utility bills. They can also be used to build credit (if you make on-time payments).

Unlike lines of credit, some credit cards come with rewards programs or other benefits like cash back on certain purchases or travel points. Some also come with other perks like purchase protection or discounts on things like rental cars.

Alternative financing options

Not sure if a credit card or a personal line of credit is right for you? The following options may work better for your situation:

• Budgeting and saving up: Creating a budget can help you cut back on unnecessary spending and make it easier to save more money over time. When you use your own money, you can avoid taking on additional debt or interest charges.
• Community-based financial aid: Some organizations offer cash loans or other financial assistance to members. These organizations are usually self-governing and run by volunteers. Members of the group contribute a set amount of money to a pool for a certain amount of time. Once the pool reaches a predetermined amount, one member gets the entire sum. The cycle repeats itself until every member has received money.
• Rent instead of buy: It may be more affordable to finance certain things than it is to buy them outright. This includes specialty equipment or tools that you only intend to use once or for a short time. You may have to pay interest when you rent something, but the monthly or overall cost is typically lower than buying.
• Payment plans: A payment plan, sometimes called “buy now, pay later,” lets you pay for something over a series of installments. This is similar to a personal loan, except the repayment term tends to be shorter. If you have a loan or credit card, your lender may also offer a custom payment plan based on your financial situation.
• Peer-to-peer (P2P) lending: Online P2P lending platforms offer loans made between an individual investor and an individual borrower. This option could be good if you have limited credit or do not qualify for traditional financing. However, P2P loans do not always offer the same protections as conventional loans. They may also come with higher interest rates than other loans.
• Personal loan: A personal loan is a lump sum of money that comes with its own repayment term, APR, and other fees. Many lenders offer personal loans for things like debt consolidation or paying for a large purchase. Although these loans are flexible, they can be expensive if you’re not careful. Before applying for one, use a personal loan calculator to make sure you can comfortably afford it.

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