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Category: Finance
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Experience:  Tax professional and business consultant for 35 years.
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What does a " Line of Credit" mean verse a credit

Customer Question

What does a " Line of Credit" mean verse a credit or debit card? Does it mean money is put into a bank that you can draw on. I do not understand the difference. Please explain
Submitted: 1 year ago.
Category: Finance
Expert:  PDtax replied 1 year ago.

Hi from just answer. I'm PDtax. I'll assist.

Expert:  PDtax replied 1 year ago.

A line of credit is unsecured personal credit, like a credit card. The difference is in how it is used and repaid.

Expert:  PDtax replied 1 year ago.

Credit cards are issued to borrowers of varying credit risks and rates. Available credit is typically a few thousand dollars. Lines of credit are issued to a bank's best credit customers, and can be for sizable sums of lending power.

Credit cards are usable for retail purchases, while lines of credit are used for more formal transactions, such as buying an asset at auction, like a classic car or real estate at foreclosure.

Hope that clarifies things for you. Positive feedback is appreciated to close out your inquiry. I'm PDtax.

Customer: replied 1 year ago.
To get a "Line of Credit" do you have to prove money , reserve, to back it up? With a debit or credit card I know you do not. Is the " Line of Credit " based on your credit rating as is a credit , debit card?
Expert:  PDtax replied 1 year ago.

A line of credit is for the bank's best customers. They will require collateral, even a personal guarantee.

Line of credit is dependent on a credit rating, which must be very good to excellent. Credit cards do not limit themselves to the very best customers.