About Revolving Credit

Revolving credit is when a financial institution, or a store or credit card issuer backed by a financial institution, grants a borrower a line of credit that the borrower can tap as often as he or she likes up to a predetermined limit. The balance can be paid in full each month, or the borrower can pay the balance due in installments over the course of time. If the balance is not paid in full, the outstanding balance incurs interest, which the borrower must also pay back. Credit limits are determined based upon information the lender obtains during the credit check process. Most credit cards are revolving lines of credit. You can charge up to your authorized limit, and you have the choice of paying your balance in full or paying the minimum monthly payment. If you pay less than the full amount due, the outstanding balance accrues interest, which you must also repay. A home equity line of credit is another example of revolving credit—and not to be confused with a home equity loan. Home equity lines of credit function similarly to credit cards, whereas a home equity loan requires a fixed monthly payment over a set period of time to pay off the balance. Such fixed payment loans, including car loans, are called installment loans.