Line of credit vs credit cards
Credit cards and lines of credit work in much the same way, but there are some key differences that you ought to be aware of too. We’ve broken down the details below, to help you understand:
The similarities between a line of credit and a credit card
- They are both an open-ended, revolving form of credit.
- You will be able to borrow within a set credit limit.
- You repay via monthly instalments, as long as you meet the minimum amount set by the lender.
- You only pay interest on the money you use.
The differences between a line of credit and a credit card
- Interest rates are typically higher on a credit card.
- Credit cards can be more accessible if you have a less-than-perfect credit history.
- Some credit cards can come with rewards, interest-free periods or cashback, other lines of credit don’t typically have such incentives.
How is a line of credit different to a loan?
With a loan, you are borrowing an amount of money over a fixed period of time. Once that term comes to an end, you are required to have paid off the loan plus any interest, in full. That interest is charged on the full amount, regardless of whether you actually used all of the money that you borrowed.
In contrast, a line of credit is a form of revolving credit that you can continue to use over an indefinite period of time, as long as you’re not exceeding the credit limit. It means you can keep the line of credit open, provided you are meeting the minimum monthly repayments. And you are only charged interest on the money you use, not the full credit limit.
Is a line of credit right for me?
It doesn’t matter if it’s a line of credit, a loan, a credit card or any other financial product, it’s vital that you do your homework. You need to be sure that the choice you’re making is right for you and that it suits your personal circumstances.
You need to ask yourself how much you need to borrow and whether you can afford the monthly repayments, including the interest that will be added. How long do you need to borrow for? Is a short term line of credit going to be the answer, or do you want to look at longer-term options? If you need some help, our money guidance section is a good place to start, as are our tips on borrowing.
Loans are very different to lines of credit. But what about the 118 118 Money Simple Interest Rate Credit Card? If you need a line of credit, it works in a very similar way and it could prove the perfect alternative.
Am I eligible for a 118 118 Money Simple Interest Rate Credit Card?
If you think a credit card might suit your situation more than a line of credit loan, it’s worth checking your eligibility with us before you apply. It takes just a few moments, is free of charge, and won’t make any difference to your credit score. To qualify for our credit card you’ll need to:
- Be a UK resident
- Be aged between 18 and 70
- Earn at least £8,400 a year
- Not be in arrears with another lender
- Have had no default payments in the past six months
When using our credit card eligibility checker, we’ll also need to know your:
- Email address
- Date of birth
- Current employment and residential status
- Net monthly income
- Home address
Will you do a credit check on me?
Yes. Whenever you apply for a loan, credit card or line of credit in the UK, your lender will carry out a credit check on you. It’s a standard part of the application review process, but we’ll also look at publicly available information – such as whether you have any CCJs or whether you’re on the electoral register.
It could be worth checking your credit report before you start, and don’t forget you can always use our eligibility tool, which has no bearing on your score.
Will my credit score be affected when I apply?
It’s true that applying for a line of credit, a loan or a credit card can affect your score, but the impact should be minimal. A problem will be more likely if you submit lots of applications in a short period of time, as each full application leaves a mark on your credit file.
On the other hand, if you’re approved, you can show to lenders that you can be trusted. To do this, you need to make your repayments in full and on time every month. This can work in your favour and actually improve your score.
I have questions. How do I get in touch?
If you want to know more about a line of credit loan or whether a 118 118 Money Credit Card might be a better choice, we encourage you to contact us.
You can call our Customer Services team on 02920 548 118. Lines are open 8am-7pm Monday to Friday and 9am-5pm on weekends and Bank Holidays.
Alternatively you can use our web or app chat too.