Credit Card vs. Line of Credit: Which One Should I Use?

Credit Card vs. Line of Credit: Which One Should I Use?

Credit cards and lines of credit are two popular types of financing that many people use. The following overview will explain the differences between these two borrowing options so that you can select the best one for your needs.

How Do Credit Cards Work?

A credit card is a line of credit that’s most often used for everyday purchases like groceries, gas, or clothing. If you’re approved for one, you’ll receive a physical card in the mail which you can then swipe, tap, or insert into a credit card machine to complete a transaction. 

Every time you purchase something with a credit card, your available credit is reduced until you make a payment on your account.

You’ll receive a statement each month showing all of your recent credit card transactions. Every month, you’re responsible to pay your bill. You can pay the statement balance in full to increase your spending limit, or you can pay the minimum balance due. Unlike most other financial institutions, San Francisco Federal Credit Union only requires you to pay 1% of your balance every month, which gives you more cash on hand for other bills.

Our Visa Platinum credit card also offers a cash back incentive where you earn 1% of each purchase you make. 

How Do Lines of Credit Work?

If you’re approved at San Francisco Federal Credit Union, you’re given a line of credit that you can draw from, as needed.

You can use your line of credit to make purchases as often as you like up to the credit limit, which is replenished when you repay the money you borrowed. You can repeat the process of borrowing and repaying as often as you like during the period that the line of credit is active (the draw period).

Here at SFFedCU, we offer both a personal line of credit as well as a home equity line of credit (HELOC).

Lines of credit also usually have variable interest rates. This is because the draw period could last for several years. The rate must be variable to reflect the current rate every time money is borrowed.

It’s important to point out that a personal line of credit is not the same thing as a personal loan. With a line of credit, you can periodically borrow and repay the money. With a personal loan, you receive a lump sum for the full amount upfront and then repay it with fixed monthly payments. 

How Are Credit Cards and Lines of Credit Different?

Although there are some similarities between credit cards and lines of credit, there are also some important differences to consider. These differences may make one borrowing option a better choice in certain situations.

Length of the Draw Period

With a credit card, an account usually stays open until the cardholder closes it. This means you could potentially have a credit card account for many years.

With a line of credit, the account is usually active for a specific amount of time. The draw period will vary depending on the lender but may be as long as 10 years.

Ease of Qualifying

Qualifying for a credit card may be easier than qualifying for a line of credit. For both, we will assess your credit score, employment history, and other factors to determine eligibility. When applying for a line of credit, you may also be required to provide additional documentation including W2s, bank statements, and pay stubs.


As previously mentioned, many credit cards have rewards programs, like ours, where you can earn cash back or rewards points for making purchases with your cards. Lines of credit, however, do not have rewards programs.

Collateral Requirements

Credit cards usually don’t have any collateral requirements, unless it’s for a secured card. Lines of credit, however, may require collateral.

A secured credit card allows you to qualify for a credit card even if you have a low credit score. With a secured credit card, you place a deposit with the lender for the credit limit you’re requesting. If you want a $500 credit limit, for example, you will make a $500 deposit. 

The lender holds the deposit for as long as you keep the account open. Many people use secured credit cards to either establish or build credit.

When Should Someone Use a Credit Card or Line of Credit?

Whether you should use a credit card or a line of credit depends on the situation.

Credit cards are best suited for everyday purchases. They can be used to buy groceries, fill your tank with gas, and shop online. Many people use credit cards for their daily expenses to collect as many rewards as possible. 

A line of credit may be a better borrowing option when you need to purchase a big-ticket item or consolidate debt. Secured lines of credit usually have lower interest rates than credit cards, which could help you save money.

Credit Cards With San Francisco Federal Credit Union

San Francisco Federal Credit Union offers three card options with competitive rates.

Our Visa Platinum Rewards card and Visa Student Platinum Rewards cards both allow you to earn 1% cash back for all of your purchases. We also offer a Visa Classic Secured card, which is ideal for those who want to establish and build credit.

Click below to learn more about our credit cards, which you can apply for online.

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