Personal Lines of Credit Vs. Credit Cards

Personal lines of credit and credit cards are both forms of revolving credit. Both allow you to borrow money from your credit limit to make purchases. Credit cards are a much more common option and can offer the ability to earn rewards on purchases. Personal lines of credit are less common and may offer a lower interest rate.

Let’s take a deeper look at the key differences between credit cards and personal lines of credit.

What is a personal line of credit?

A personal line of credit is a revolving credit account that you can typically access for a fixed period.

When you open a personal line of credit, you’re approved to borrow up to a specific credit limit.  Whenever you buy something with your personal line of credit, your credit limit is reduced by the purchase amount, plus any interest you’re charged over time. When you repay all or part of what you’ve used, your credit limit is replenished.

Personal lines of credit typically have a draw period and a repayment period. During the draw period you can use your personal line of credit to make purchases directly or to withdraw cash.

Once the repayment period starts, you no longer have access to your credit limit. You must pay what you borrowed back by the end.

Some personal lines of credit don’t have a repayment period. They require you to make a “balloon payment” at the end of the draw period to repay all of what you’ve borrowed.

What is a credit card?

Like a personal line of credit, a credit card allows you to make purchases using a revolving line of credit (your credit limit).

As you make purchases, you’ll accumulate a balance that you must repay. If you don’t pay your balance off in full by the due date each month, you’ll be charged interest on your remaining balance. The interest charged depends on your card’s APR.

Some credit cards let you earn rewards on your purchases, like points, miles or cash back.

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

Revolving debt: Credit cards and personal lines of credit are types of revolving debt. Revolving debt is different from installment debt, such as a personal loan, where you’re given a lump sum that you pay back in fixed monthly installments. With revolving debt, you have access to a credit limit that you can use as needed. As you repay your balance, your credit limit is replenished. 

Unsecured: Both credit cards and personal lines of credit are typically unsecured, which means you don’t have to use an asset like a house or car as collateral.

Build your credit history: If you make consistent payments and keep your credit utilization low, both a credit card and a personal line of credit can be a way to build credit.

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

How you access your funds: How you access funds from a personal line of credit can vary. You might be able to write checks, transfer funds to a different account or use a card to make a purchase. With a credit card, you can typically swipe, insert, tap or use your digital wallet at points of sale. 

How interest is accrued: If you carry an outstanding balance on your credit card or personal line of credit, you can be charged interest. However, credit cards often have a grace period on purchases. A grace period is the amount of time between the end of a billing cycle and the payment due date in which you are not charged interest on your purchases if you pay your credit card balance in full by the due date each month. If you do not pay the full balance by the due date each month, you may lose the grace period and instead be charged interest on your purchases from the date they’re posted to your account. Other transactions on the credit card, like balance transfers and cash advances, typically do not have a grace period and interest may begin accruing on the date of these transactions.  Personal lines of credit don’t have grace periods, so interest begins to accrue as soon as you use funds.

Interest rates: Personal lines of credit can have lower interest rates than credit cards.

Length of time open: You can typically use your personal line of credit until the draw period ends. You can use your credit card for as long as the account remains open.

Potential to earn rewards: Credit cards may have rewards programs that allow cardholders to earn cash back, points or miles on purchases. Personal lines of credit typically do not offer rewards.

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

When you apply for a personal line of credit or a credit card, the lender may perform a hard credit inquiry. Hard inquiries can decrease your credit score by a few points for up to a year and stay on your credit report for up to 2 years.

Your activity for personal lines of credit and credit cards is typically reported to the credit bureaus. Managing credit responsibly by making payments on time and keeping your credit utilization low can help improve your creditworthiness over time. On the other hand, if you miss payments or use a large portion of your credit limit, it can negatively impact your creditworthiness.

Choosing between a personal line of credit or a credit card

The right choice will come down to your financial circumstances. 

Both personal lines of credit and credit cards can be flexible ways to borrow what you need. Personal lines of credit can be better if you only need access to a credit limit for a set period. In general, a personal line of credit can be useful for financing large purchases with a set end date like home repairs while credit cards can be a better option for everyday expenses like groceries and gas.

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.

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

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

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