Line of Credit Vs Credit Card differences

[Anonymous]

Hi All ,

        I had seen posts in this forum mentioning about the Line Of Credit (LOC) approvals quite frequently . While i am somewhat knowledgable in the credit card terms (thanks to this forum) , i am still not able to fully understand LOC . From my limited understanding , it looks like LOC is an agreement between you and the lender that you have the access to take loans in future upto a certain amount at a pre-determined rate . When you are in need of money , you withdraw it from your allowable amount and then start paying intertest to the lender at the agreed rate .

I have the below specific questions how LOC differs from Credit Cards and pros/cons -

1) Why do people take LOC when they already have credit cards ? . Is it just because credit cards have higher APR's than LOC's .

2) If i have a LOC and Credit Card at same APR , is there any advantage in utilizing the LOC rather then the credit card .

3) Impact of LOC in the credit report . Will it be reported only if i utilize the LOC or will it report always . Will the entire LOC be added to my available credit limit or only the amount i used will be included in the credit limit . Will it impact AAOA like the credit cards do .

4) Are there any charges i need to pay the lender if i do not utilize the LOC .

5) Like CC , are AA taken for a LOC that was approved .

6) Finally , if i want to take a LOC but not intertested in the CC of the same lender , will they provide me LOC or i need to establish history first with a CC .

I know these are lot of questions , but i am really intertested on knowing more on the LOC .

Thanks for your help .

[Anonymous]

Maybe, check writing ability?

[Themanwhocan]

Does a LOC improve credit mix, or is it indistinguishable from other revolving credit on a credit report?

[UncleB]

I can add as a data point many of the LOCs I've checked out report as 'revolving' for reporting purposes, the same as a credit card. That's not to say they all do, but apparently this is true for many of them.

For me, the determining factor would be the APR and if there was a fee for getting the money.  If I can use a card and the rate is lower, I likely would simply do that.  But if the card can't be used and a cash advance is required, I would figure in the cash advance fee to see if the card was still the cheapest way to go - if the APRs are the same, the obvious choice would be the LOC (this is assuming it can be access with a check or transfer to checking).

There are several variables there, but I would 'do the math' and select the absolute cheapest route. 

[ways2go]

LOC is also used as a overdraft protection.  You can use it to access cash instead of a cash advance on your credit card .  You can write checks against your LOC.  The downside is that it starts accruing interest on day one.  It also helps on your total utilization.  Mine reports as a revolver with my credit cards.

[Anonymous]

LOC can be used for cash only expenses like rent and debt payments, without a penalty "cash advance" APR (and without having to use those third party payment companies that seem to be very hit and miss). In a business setting they could also be used to pay wages etc, which business credit cards can't do.

Biggest downside is they still accrue interest right away and different banks handle them very differently. You have to shop around a lot for good PLOCs but they could save you in an emergency from expenses that credit cards can't cover.

They don't help your credit mix. They just look like another CC on your report.

[manyquestions]

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@Anonymous wrote:

Hi All ,

        I had seen posts in this forum mentioning about the Line Of Credit (LOC) approvals quite frequently . While i am somewhat knowledgable in the credit card terms (thanks to this forum) , i am still not able to fully understand LOC . From my limited understanding , it looks like LOC is an agreement between you and the lender that you have the access to take loans in future upto a certain amount at a pre-determined rate . When you are in need of money , you withdraw it from your allowable amount and then start paying intertest to the lender at the agreed rate .

I have the below specific questions how LOC differs from Credit Cards and pros/cons -

1) Why do people take LOC when they already have credit cards ? Like you I was curious.  Is it just because credit cards have higher APR's than LOC's . My LOC has a higher APR than some of my credi cards. It's about in the middle APR wise.

2) If i have a LOC and Credit Card at same APR , is there any advantage in utilizing the LOC rather then the credit card . You can write a check without paying a cash advance fee but the interest charges begin immediately.

3) Impact of LOC in the credit report . Mine, like most if not all,  looks like a credit card to FICO. Will it be reported only if i utilize the LOC or will it report always Reports each month like a credit card. . Will the entire LOC be added to my available credit limit or only the amount i used will be included in the credit limit . Entire credit limit just like a credit card.  Will it impact AAOA like the credit cards do . Yes. Just like adding an additional credit card.

4) Are there any charges i need to pay the lender if i do not utilize the LOC . Not for mine but they can have an annual fee like some credit cards do.

5) Like CC , are AA taken for a LOC that was approved . They can if they want to just like with a credit card.

6) Finally , if i want to take a LOC but not intertested in the CC of the same lender , will they provide me LOC or i need to establish history first with a CC . I don't know of any where you have to have their CC first.

I know these are lot of questions , but i am really intertested on knowing more on the LOC . I was too.  I got one and I never use it. LOL. I was hoping it would make some difference to my FICO mix but it had no affect on my score.  I wouldn't bother getting one unless you can think of a reason it will be useful to you. Otherwise it will be like adding a new credit card that you never use.  That's my experience.

Thanks for your help .

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[Anonymous]

Thanks everyone for your responses .

Infact , after reading your responses  i am thinking it is better to have a LOC available at hand so that we can use it for emergency purposes without using the CC Cash advance APR and fee .

[Anonymous]

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@Anonymous wrote:

Thanks everyone for your responses .

Infact , after reading your responses  i am thinking it is better to have a LOC available at hand so that we can use it for emergency purposes without using the CC Cash advance APR and fee .

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Why don't you look for a cc that has zero cash advance fee with low apr. My penfed promise has $0 cash advance fee and low apr. 

[jsucool76]

Or the barclaycard ring. Charges $1 CA fee, and 8% APR.