What Is Open-End Credit?

5 Min Read | Published: May 8, 2024

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This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Open-end credit is also revolving credit that a borrower can draw from repeatedly. Learn how it works and how it could impact your credit score.

At-A-Glance

Open-end credit, also known as revolving credit, is credit that a borrower can draw from repeatedly, typically up to a certain amount.
When the borrower repays a portion of the money that was borrowed, those funds become available to borrow again.
Lines of credit and credit cards are popular forms of open-end credit.

Open-end credit, sometimes referred to as revolving credit, can provide a convenient and flexible financing option. In this article, we’ll cover what you need to know about this form of credit.

How Does Open-End Credit Work?

Open-end credit is a type of credit that provides continuous access to financing. With this form of credit, you typically receive a credit line or credit limit, which you can draw from as you choose. Once you repay the funds that you’ve borrowed, you can then draw from the line of credit again and continue using the form of credit.

Examples of Open-End Credit

Credit cards are one of the most common examples of open-end credit. A home equity line of credit (HELOC) and a personal line of credit are also forms of open-end credit. These types of credit are generally considered “open-ended” because you can draw from the credit limit repeatedly. For example, when you pay off your credit card balance, your credit limit resets.

Let’s say you have a personal line of credit with a $500 limit, which you use to make $150 worth of purchases. Once you pay off the $150 balance, you’ll be able to spend up to $500 again.

Open-end credit stands in contrast to closed-end credit, which typically provides a fixed amount of money that must be repaid within a specific timeframe. And once you pay off a closed-end loan, the account is typically closed. Examples of closed-end credit include mortgage loans, personal loans, and auto loans.¹

Can Open-Ended Credit Impact Your Credit Score?

Open-end credit can impact your credit score, either positively or negatively. For example, paying your bills on time may help boost your score since payment history is one of the most important factors in your FICO^® credit score.²

Having open-end credit accounts can also impact your credit utilization rate, which measures how much of your available credit you’re using. With a FICO credit score, your credit utilization ratio (also known as amounts owed) is another important factor that makes up your credit score.

A higher credit utilization ratio may result in a lower credit score. While a ratio of 30% is the point where it starts to have a pronounced negative effect on your credit score, people who have the highest credit scores tend to have lower credit utilization ratios, in the single digits.³

Benefits of Open-End Credit

One of the main benefits of open-end credit is flexibility. Open-end credit accounts allow you to pull from a sum of cash on an as-needed basis, whether for unexpected expenses or pre-planned purchases. Open-end credit can be used for multiple transactions as and when the need arises.

Additionally, open-end credit can help boost your credit score when you make consistent on-time payments and maintain a low credit utilization rate.

Potential Drawbacks of Open-End Credit

One thing to watch out for with open-end credit is the potential for overspending. Using too much of your available credit can have detrimental effects on your credit and overall financial stability if you are unable to pay it back on time. It may also be challenging to understand the total cost of borrowing since the interest rate on an open-end credit account may be variable and could be subject to change.

Opening multiple open-end credit accounts at once also may negatively impact your credit score. Each time you apply for a new account, it results in a “hard inquiry” on your credit report. Typically, though, this impact is minimal. In fact, usually, a hard inquiry will take less than five points off your FICO Score.⁴

Frequently Asked Questions

Credit cards are one of the most common forms of open-ended credit.⁵ Credit cards provide a revolving line of credit that borrowers can use on an ongoing basis up to the predetermined credit limit. Other common forms of open-end credit are personal lines of credit and HELOCs.

Open-end credit is important because it gives you continuous access to funds to meet expenses and achieve your financial goals. As you pay off open-end credit, your credit limit gets reset, giving you access to an ongoing form of financing.

When applying for an open-ended loan, lenders may consider your credit score and income. However, it’s important to note that the specific requirements vary by lender.

The Takeaway

Open-end credit offers flexible access to financing and could be a good option if you’re looking for ongoing access to financing. As always, consider the pros and cons carefully before taking out any form of credit.

¹ “What is closed-end credit?,” Experian

² “What’s in my FICO^® scores?,” MyFICO

³ “What Is a Credit Utilization Rate?,” Experian

⁴ “Credit Checks: What Are Credit Inquiries and How Do They Affect Your FICO^® Score?,” MyFICO

⁵ “What is open-end credit?,” Experian

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Theresa Stevens is a personal finance writer based in Boston, Massachusetts. Her work has been featured in Forbes Advisor, Bankrate, USA TODAY Blueprint and more.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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