What is a line of credit? 

A line of credit is a flexible loan you can take out from a credit union or bank. The lender usually begins charging interest as soon as the money is borrowed, and it’s typically at a variable rate. Sometimes a line of credit allows you to borrow against an asset you already own, like a Home Equity Line of Credit (HELOC). 

Some lines of credit, like the HELOC from RMCU, give you flexible spending much like a credit card. If you have equity built up in your home, a HELOC could be a good option for just about any type of spending, from home improvements to wedding expenses. Or with an overdraft line of credit, instead of paying an overdraft fee every time you overdraw your checking account, you only pay interest on the amount you overdraw. There’s a line of credit out there to suit just about any situation.  

You usually get the money via check, ATM, or online banking. But in some cases, you may even use a credit card. Depending on the line of credit you open, you might have a repayment schedule, or you might have a single, fixed payment due date for the whole amount. It just depends on the terms. A line of credit can help you build a credit score, and responsible management of the line of credit can help your score increase over time. 

How you can use a line of credit to your advantage 

Use a line of credit for big purchases that don’t have traditional financing options like you’d use when buying a house or a car. Or you may be able to use them for some daily expenses much like you would use a credit card. If you have a purchase in mind that you can’t pay for out of pocket but that other types of loans don’t quite fit, a line of credit with a low interest rate could be a better option than putting the purchase on your credit card. 

What is a credit card? 

A credit card is similar to a line of credit because you’re borrowing money from the financial institution that issued your card with each purchase you make. Unlike a line of credit, which might have a single repayment date or a payment schedule, you almost always will have minimum monthly payments to make if you use your card during the month. If you don’t pay off your balance in full each month, your financial institution will usually charge interest on the unpaid balance—though there are some low-interest or interest-free options out there (at least for an introductory period). This interest rate is often variable, like a line of credit. 

Unlike a line of credit, many credit cards allow you to earn rewards as you spend, racking up travel points, cash back, or gift cards if you choose an option like the VISA Platinum Rewards Card from RMCU.

You usually access the money by using your credit card, whether in person or online. But some cards allow you to withdraw money from an ATM or by cutting a check, often for a fee. You can manage your payments and see transactions in your online banking. Like a line of credit, having a credit card affects your credit score. Whether it gives it a boost or brings it down comes down to a lot of factors, like number of new accounts opened, on-time payment history, and other considerations. 

How to be a credit card ninja

Use your credit card for everyday spending and unexpected expenses up to your credit limit. Credit cards have the advantage of being easy to use and easy to earn rewards with. When you can pay your balance in full every month, you won’t pay interest on purchases. If that’s how you manage your credit, it’s a lot like using cash, but you can earn rewards when you spend (depending on the type of credit card you have). 

Whether a line of credit or a credit card is the right option for you, RMCU has flexible offerings with an easy online application. Apply for a credit card or line of credit, and see where your finances can take you.*

*Must qualify for membership. On approved credit. Some restrictions may apply. By member’s choice, this institution is not federally insured. Each account is insured for up to $250,000.00.