When it comes to borrowing, not all credit is created equal.
It’s true that both lines of credit (LOC) and credit cards offer financial flexibility, but they also serve different purposes and come with unique features.
Understanding how each product works and when to use one over the other can help you make better financial decisions and get the most out of your credit.
Line Of Credit (LOC) VS. Credit Card: Key Points
| Line of Credit (LOC) | Credit Card | |
|---|---|---|
| Type of Credit | Revolving credit | Revolving credit |
| Purpose | Large expenses, higher education | Everyday expenses , bills, and purchases |
| How To Use | Withdraw funds via cheques or bank transfers | Online or in store |
| Interest Rates | Typically lower than credit cards and are usually a variable rate | Typically higher and fixed |
| Repayment | Minimum monthly payments required | Minimum payments required |
| Credit Limit | Usually higher than credit cards | Usually lower |
| Interest-Free Grace Period | None | 21–30 days |
| Fees | May have annual or withdrawal fees | Often includes annual fees and late payment fees |
| Impact on Credit Score | Yes, affects credit utilization and payment history | Yes, affects credit utilization and payment history |
| Points | None | Usually has cash back or some other points system |
What Is A Line Of Credit?
A line of credit (LOC) offers flexible access to borrowed funds with repayment terms that are designed to suit a range of financial needs. Here are some of the key features you can expect.
Line Of Credit Features
- Line Of Credit Loan Amount – A LOC is typically available from $5,000 to $100,000 or more, depending on the borrower’s credit profile and the lender’s own policy.
- Term – Lines of credit are open-ended, meaning there is no set end date as long as the account remains in good standing and minimum payments are made.
- Interest Rate – Lines of credit can have either fixed or variable interest rates. Variable rates are often tied to the lender’s prime rate, with average unsecured LOC rates ranging from 7% – 10% in Canada,
- Repayment – Only monthly interest payments are required, but borrowers can make principal payments at any time without penalty. Paying more than the minimum will reduce the total interest paid.
Learn more: Best Line Of Credit Rates In Canada
How To Access A Line Of Credit?
With a LOC, you can access your funds in a few different ways, depending on your lender.
- Cash Access – You can withdraw cash from your line of credit by visiting a branch or using an ATM, similar to a regular bank account. Some banks also offer cash advances linked to your line of credit.
- Cheques – Many lines of credit come with a cheque book, allowing you to write cheques directly against your available credit limit.
- E-Transfer – Some lenders allow you to send an Interac e-Transfer directly from your line of credit, giving you flexible, fast access to your funds.
- Move Money to Other Accounts / Pay Bills – You can transfer money from your line of credit to another account, such as your chequing account, through online or mobile banking. You can also use the funds to pay bills directly.
Learn more: How Does a Line of Credit Work?
How To Qualify For A Line of Credit
Qualifying for a line of credit in Canada usually involves a few more checks compared to a credit card, because you’re being offered access to a larger amount of money.
Here’s what lenders typically look for:
Strong Credit Score
Most lenders prefer a credit score of 660 or higher for an unsecured line of credit. As with credit cards, a higher score will help you access better rates and terms.
Reliable Income and Employment History
To be successful in your application for a LOC, you’ll need to show steady employment and/or a consistent source of income to prove you can repay borrowed amounts.
Low Debt Load
Lenders want to see that you’re not overextended. A low debt-to-income ratio shows you can manage additional credit responsibly.
Where Can You Get A Line Of Credit In Canada?
In Canada, you can get a line of credit from a bank, credit union or private lender. Here are some options:
What Is A Credit Card?
Credit cards are one of the most common forms of revolving credit, offering you flexible borrowing options for everyday purchases, larger expenses and even cash advances.
Features Of A Credit Card
- Loan Amount – Credit cards come with a set borrowing limit, usually ranging from a few hundred to several thousand dollars. The limit is based on factors like your credit history, income, and the card issuer’s policies. Higher-limit cards are often available to those with strong credit profiles.
- Term – A credit card is an open-ended form of credit, meaning there’s no fixed term or end date. As long as you stay within your credit limit and make at least the minimum payments, you can continue using the card indefinitely.
- Interest Rate – Most credit cards in Canada offer fixed interest rates, though some cards have variable rates. Typical interest rates for a credit card range from 19.99% to 24.99% for purchases, with higher rates for cash advances. Low-interest cards are out there, too, and generally offer 8.99% to 12.99% but with fewer rewards or benefits.
- Repayment – Credit cards have strict minimum repayment requirements. Most minimum payments are based on a percentage rate or a flat rate, whichever is higher. You must make at least the minimum monthly payment to stay in good standing.
- Offers & Rewards – Many credit cards offer additional perks like cashback, travel points, store discounts, travel insurance and welcome bonuses. Rewards can add real value if you pay off your balance regularly, but they shouldn’t outweigh the cost of carrying debt.
How To Access A Credit Card?
A credit card gives you access to a revolving credit limit that you can use to make purchases, pay bills or access cash advances. Once your card is approved, you can spend up to your available credit limit, either in-person, online or over the phone.
- Purchases – You can use a credit card directly to buy goods or services wherever credit cards are accepted, both in Canada and internationally.
- Cash Advances – You can withdraw cash from an ATM or through online banking as a cash advance, but these often come with higher interest rates and additional fees.
- Pay Bills – Many utility providers, streaming services, and other companies accept credit cards for regular bill payments, either one-time or automatic.
Some credit cards allow balance transfers, moving debt from one card to another at promotional rates. You can also set up your bank account to make payments toward your card balance through online banking or mobile apps.
| Minimum Payment Trap While minimum payments offer great convenience and financial relief when finances are tight, they can cause debt to spiral. Carrying a balance means you’ll be paying interest on the unpaid amount. Paying your balance in full every month helps you avoid interest charges altogether. |
How To Qualify For A Credit Card
Getting approved for a credit card in Canada is usually straightforward, but lenders do look at a few key factors before giving the green light. Here’s what you generally need to qualify.
Good To Strong Credit Score
Most lenders look for a credit score of at least 660 for standard cards. Premium or rewards cards may require scores of 720 or higher.
That said, there are low-credit options, such as secured credit cards, available to those with lower credit scores or no credit history.
Stable Income
Most credit cards will require you to show proof of regular income, to demonstrate that you can responsibly repay what you borrow. Most premium rewards credit cards require a minimum income of $60,000 (individual) or $120,000 (household).
Low Debt-to-Income Ratio
If you’re carrying a lot of existing debt, lenders might hesitate. Keeping your debt levels low relative to your income can make approval easier.
Where Can You Get A Credit Card?
You can get a credit card from various banks, credit unions and alternative lenders. Finding the right credit card can be difficult as there are many credit with different features, benefits and requirements. Here is a list of credit cards by type:
Looking for the best credit card options?
When To Use A Line Of Credit vs. Credit Card
Choosing between a line of credit and a credit card often comes down to the type of expense and how you plan to repay it. Each option has its strengths depending on the situation.
When To Use A Line Of Credit
A line of credit is better suited for larger expenses, unexpected costs, or situations where you need flexible access to funds over a longer period. It’s ideal when you’re managing bigger projects or need a financial safety net you can tap into as needed. Because interest rates are usually lower than credit cards, and you only pay interest on what you use, a line of credit can be a more affordable borrowing option when managed carefully.
Consider using a line of credit when:
- Funding home renovations or upgrades
- Covering large medical or dental expenses
- Managing irregular income or seasonal cash flow gaps
- Handling major unexpected expenses, like emergency repairs
- Consolidating higher-interest debt into one lower-interest account
When To Use A Credit Card
Credit cards are designed for everyday purchases, short-term borrowing, and situations where speed, convenience, and added perks are important. With rewards programs, cash back, and strong fraud protection, credit cards can add value to your regular spending—but only if you pay off your balance regularly to avoid high interest charges.
Consider using a credit card when:
- Paying for groceries, gas, or household essentials
- Booking travel or making purchases that benefit from points, miles, or cash back
- Shopping online where fraud protection and dispute resolution offer extra security
- Covering small, short-term expenses you can repay within a few weeks
- Taking advantage of limited-time promotions or 0% introductory offers
How Does a Credit Card Impact My Credit Score?
Using a credit card responsibly can help build your credit, but there are some key factors to keep in mind:
- Payment History: Paying on time helps your credit score, while missed payments can hurt it.
- Credit Utilization: Ideally, aim to keep your balance under 30% of your total limit to avoid damaging your score.
- Credit Inquiries: Applying for a new credit card will cause a small but temporary dip in your credit score.
- Credit Age: The longer you’ve had a card and used it responsibly, the better it will be for your credit health.
Learn more: Does Applying For A Credit Card Affect Your Credit Score In Canada?
How Does A Line of Credit Impact My Credit Score?
A line of credit can impact your credit score in similar ways to a credit card:
- Credit Utilization: Try to keep your borrowing low compared to your total limit to maintain a good credit score. Increasing your credit limit can also help keep your utilization ratio low.
- Payment History: Timely payments will improve your score, while missed payments can damage it.
- Hard Inquiries: As with a credit card, applying for a new LOC will often cause a small dip in your score initially.
Bottom Line
Whether you’re covering an unexpected expense or managing day-to-day purchases, choosing between a line of credit and a credit card comes down to how you plan to use the funds.
With the right approach, either can be a valuable financial tool.
