Line of Credit vs Credit Card: How to Decide Based on Your Credit Score
June 23, 2025 | Last Updated on: June 23, 2025

For business owners, running a small business comes with many financial decisions to take. One of the important questions that often comes around is choosing between a line of credit vs a credit card. This choice may seem small, but your credit score plays a big role in it.
Understanding how both the options work can empower you to make more informed business decisions. Since each financing option comes with its own set of benefits, selection should reflect your current credit standing and long-term business goals.
So, let’s see in this guide what to choose between a line of credit vs a credit card for your business needs. We’ll also discuss the pros and cons of a business credit card vs a line of credit, the role of credit score, and which option to choose for your small business.
What is a Line of Credit
A line of credit is a revolving credit product that allows you to borrow money up to a set credit limit. You can withdraw necessary funds when needed and repay by paying interest only on the amount used.
When comparing a line of credit vs a credit card, it comes with various options such as a personal line of credit, business line of credit, or even a home equity line of credit (HELOC). The flexibility of this financing option is ideal for managing cash flow without taking out a lump sum loan amount.
Benefits of a Line of Credit
Between a line of credit vs a credit card, here are some of the benefits of using a business line of credit as a financing tool for your small business.
- You only pay interest on the amount of money you borrow.
- Between a line of credit vs a credit card, a business line of credit comes with lower interest rates.
- It is ideal for large purchases or emergency business expenses.
- You can reuse the funds during the draw period once repaid.
- Lines of credit are great for managing seasonal dips in business cash flow.
- This financing option is easier to control than a personal loan, which comes with rigid repayment.
Example: A bakery owner in Florida uses a business line of credit during slower months. This helps cover payroll and inventory without any delays.
What are Credit Cards
Credit cards offer revolving credit for everyday purchases. Business owners can use it for short-term business financing, especially when they want perks like reward programs and cash back.
Between a line of credit vs a credit card, these come with a grace period that gives you more flexibility before interest is charged. Also, depending on your creditworthiness, you might access a higher credit limit over time.
Benefits of Credit Cards
When choosing between the two options, a line of credit vs a credit card, here are some advantages of using a credit card for your small business.
- Business credit cards are perfect for small and frequent transactions.
- Many credit cards offer reward points, travel miles, or cashback points.
- These also help build credit and improve your credit history.
- Between a line of credit vs a credit card, it is easier to track expenses through your credit card issuer portal.
- It often includes warranties and buyer protections.
Example: A salon owner in Ohio uses a business credit card to buy supplies. She earns cash back and avoids overdraft fees from her checking account.
Line of Credit vs Credit Card: Side-By-Side Comparison
It’s often confusing what to choose between a line of credit vs a credit card since both offer revolving credit. However, they differ in repayment, rewards, cost, and billing cycles.
Here are the differences between a line credit vs a credit card.
Feature | Line of Credit | Credit Card |
---|---|---|
Use Case | Large purchases or working capital | Everyday purchases |
Interest Rates | Lower interest rates | Higher interest rates |
Credit Limit | Higher credit limit | Usually lower limit |
Repayment | Flexible repayment terms | Minimum monthly payment |
Access | Bank account transfers | Card swipe or cash advance |
Fees | May include draw fees | Annual fee, late payment charges |
Rewards | Rare | Cashback, perks, rewards programs |
Billing Cycle | Based on usage | Set due date and grace period |
The Role of Credit Score in Your Decision
When it comes to a line of credit vs a credit card, your credit score plays a very important role. It reflects your creditworthiness. Lenders, traditional banks, and credit unions use it to determine available credit, repayment terms, and interest rates.
Your credit score also influences your eligibility for reward programs, lower annual fees, or higher limits when considering a credit card for your business. However, in some cases it may even determine the type of financial advice a lender provides.
Here’s what your credit score may indicate:
- Excellent: 800 - 850
- Very Good: 740 - 799
- Good: 670 - 739
- Fair: 580 - 669
- Poor: 300 - 579
A higher credit score gives you access to better lending products. It also helps qualify for lower interest rates from various FDIC-insured financial institutions.
Line of Credit vs Credit Card: Ideal Option Based on Your Credit Score
All credit options are not created equal, especially when credit score is involved. Let’s breakdown which option is the best to choose between a line of credit vs a credit card based on your credit score.
Poor Credit Score (300 - 579)
- With a poor credit score, credit cards are easier to obtain between a line of credit vs a credit card.
- Using secured credit cards may help rebuild your credit account.
- Also, personal loans might be a good option for urgent business needs.
Fair Credit Score (580 - 669)
- Credit cards with low annual fees are more accessible with a fair credit score.
- Personal lines of credit may be a limited option. However, it is still possible, depending on the lender.
- Reward programs might be minimal in this range.
Good Credit Score (670 - 739)
- Lenders are more likely to offer both credit cards and lines of credit.
- Credit cards offer perks and grace periods.
- Also, evaluate your monthly payments and cash flow needs before choosing between a line of credit vs a credit card.
Very Good and Excellent Credit Score (Above 740)
- With a credit score of 740 and above, you may be able to get approved for high-limit credit accounts.
- Compare lines of credit vs credit cards based on your business needs.
- Choose a line of credit if large purchases are needed. While pick a credit card for perks and cashback.
When to Choose a Line of Credit
There are some business owners who wonder about the comparison between line of credit vs instant credit available.
A line of credit may be better than a credit card when you need ongoing access to funds. This option typically suits those who want more control over their cash flow.
Best Use Cases of a Line of Credit
Between a line of credit vs a credit card, you can choose a business line of credit for:
- Funding inventory or business expansion
- Managing draw period costs in projects
- Avoiding a lump sum loan with fixed terms
- Reducing reliance on personal finance products
- Using a home equity line of credit (HELOC) to fund long-term upgrades.
When to Choose a Credit Card
Between a line of credit vs a credit card, you can choose a credit card for your business to manage smaller, everyday expenses. It also helps build credit when payments are timely.
Best Use Cases of a Credit Card
Between a line of credit vs a credit card, you can choose a business credit card for:
- Handling travel and dining costs
- Purchasing office supplies or software subscriptions
- Using grace period to avoid interest
- Tracking monthly expenses efficiently
- Taking advantage of introductory cash advance offers
Conclusion
Choosing between a line of credit vs a credit card doesn't have to feel overwhelming. Both tools serve valuable roles in small business finance. Your credit score acts as a guide to help you navigate the best route forward.
If your business needs quick flexibility and rewards, a credit card could work well. However, if you're managing unpredictable cash flow or planning large purchases, a line of credit might offer more value. Therefore, evaluate your goals, spending habits, and repayment ability before committing.
Take the time to speak with your lender or credit union. Ask about credit limits, interest rates, and repayment terms before signing up. Smart borrowing today sets you up for stronger financial health tomorrow.
FAQs About a Line of Credit vs a Credit Card
What is the main difference between a line of credit vs a credit card?
A line of credit may offer more flexibility for larger or irregular expenses. Whereas a credit card is often easier for small purchases and comes with perks. However, the best choice might depend on how each option fits your spending habits.
Can I have both a credit card and a line of credit?
Many business owners have both a line of credit and a credit card to meet different financial needs. However, each product serves a different function and can complement the other. Therefore, always consider your cash flow and credit score before applying for any of the two options.
Which has lower interest rates between a line of credit vs a credit card?
Lines of credit generally come with lower rates, but that may vary by lender and your credit history. Some credit cards offer promotional APRs for a limited amount of time. Hence, it’s better to compare options based on your eligibility and financial goals.
Can I use a line of credit like a credit card?
While both are forms of revolving credit, their usage feels different. A line of credit typically transfers funds to a bank account, while credit cards are swiped for transactions. However, some situations may favor one over the other.
Are there fees involved with both credit cards and lines of credit?
Both may involve fees depending on the issuer and the product. You could face annual fees, late payment fees, or draw fees. Hence, always review terms or talk to a financial advisor before applying to avoid unexpected costs.
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