Revolving Credit

Revolving credit summary:

• With revolving credit, you get a credit line you can borrow from and repay repeatedly. 

• A credit card and a home equity line of credit (HELOC) are two common forms of revolving credit. 

• You usually get a predetermined spending limit with revolving credit. 

Revolving credit definition and meaning

Revolving credit is a line of credit that remains open. There's no fixed number of payments, and there's no set payoff date for the debt. You can borrow, repay, and borrow more, up to your credit limit, as often as you like, assuming the account is in good standing. As you use the credit line, your available credit shrinks. Making a payment typically frees up available credit.

Key concept:

Revolving credit is a line of credit that allows you to borrow, repay what you've borrowed, and borrow more. 

More about revolving credit 

With revolving credit, you can borrow money, repay all or a portion of it, and borrow from the same line of credit again. Revolving credit accounts usually come with a spending limit. 

Revolving credit is a convenient way to have quick access to money you can spend.

For example, a home equity line of credit is a revolving credit account during the draw period. If you're upgrading your home, a HELOC could allow you to purchase what you need for your current building phase, make payments against your balance, and buy more materials in a few months when you need them, without applying for a new line of credit. 

Revolving credit: a comprehensive breakdown 

Sources of revolving credit may be more common than you imagine. Here are three excellent examples:

• Credit card. Credit cards are the most common type of revolving credit, as they allow you to make purchases up to your credit limit, pay off that debt, and reuse the amount you've paid off.

• Personal line of credit. A personal line of credit (PLOC) is similar to a credit card. A PLOC credit line tends to be higher than the limit on your credit card, and the interest rate tends to be lower. PLOCs are available through banks and credit unions.

• Home equity line of credit. A home equity line of credit (HELOC) is a revolving credit account. The loan limit is typically higher for HELOCs than for PLOCs or credit cards. 

One important difference between credit cards, PLOCs and HELOCs is that credit cards are often open indefinitely. PLOCs and HELOCs have a draw period when you can access your credit line, followed by a repayment period when you can’t borrow any more.

Revolving credit may be secured or unsecured. 

Secured revolving credit requires collateral such as property or a security deposit. The lender will review your creditworthiness and financial situation when you apply. And you have to pledge something valuable as a guarantee that you’ll repay the loan. A HELOC is a secured revolving credit account.

Unsecured revolving credit doesn't require collateral. When you apply, the lender will consider your creditworthiness and financial situation. Credit cards can be either secured or unsecured, but most are unsecured.