What Is Revolving Credit?
5 Min Read | Last updated: January 7, 2025
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.
Revolving credit may allow you to borrow up to a set limit on an ongoing basis. You can repay it and borrow again. Learn how revolving credit works.
At-A-Glance
- With revolving credit, you can borrow against a set limit on an ongoing basis. As you repay the amount, your available credit may increase.
- Credit cards, personal lines of credit, and home equity lines of credit (HELOCs) may all be examples of revolving credit.
- Unlike revolving credit, installment credit can give you access to funds all at once and must be paid off in regular installments.
With revolving credit, you can borrow money repeatedly up to a set amount, which can then be repaid. In this article, we’ll learn how revolving credit works and how to stay on top of your account.
How Does Revolving Credit Work?
Revolving credit is a type of credit that allows you to borrow money up to a certain limit. You can then repay it and borrow again.1
With this form of credit, you may be assigned a maximum borrowing amount, known as the credit limit, which you can access as needed. Repayment is often flexible, and you can choose to pay back the borrowed amount in full or make a minimum payment, although interest may accrue on any remaining balance that you carry forward. As you pay down the borrowed amount, your available credit may increase again, enabling you to borrow more if required.
Revolving Credit Examples
There are different forms of revolving credit, including:
Credit Cards
With a credit card, you can borrow money up to a certain limit, and you may spend against that limit when you make purchases or conduct transactions with your card. Every month, you hit the reset button if you pay your balance in full. And then you’re back where you started, and can borrow up to your limit again. If you don’t pay your credit card in full, you may carry an unpaid balance into the next month, known as “revolving the balance.” In most cases, you can begin paying interest on this amount.
Personal Line of Credit
With a personal line of credit, you can borrow money up to a credit limit, just like with a credit card. These lines of credit may have a draw period during which you can withdraw money or make purchases with your debit card. As you use your line of credit, your available credit may decrease and as it’s paid back, your available credit may go back up. Once the draw period is over, you can repay any remaining balance with monthly payments.2
Home Equity Line of Credit
A home equity line of credit can be similar to a personal line of credit. However, with a HELOC, you use your home as collateral. You can access between 60% and 85% of your home’s equity, depending on the lender and your financial profile.3 This line of credit may be used to finance home improvements. You may have a draw period during which you can access funds and once the draw period is over the repayment period can start.
What Is the Difference Between Revolving Credit and Installment Loans?
Another form of credit is installment credit, which cannot be accessed on a recurring basis. Instead, installment loans can allow the borrower to access a fixed amount of money, which then can be paid back over a period of time. Interest can be fixed or variable on installment loans.4
Examples of installment loans include mortgages, car loans, student loans, and personal loans. While revolving credit provides flexible access to funds as you need them, installment loans may be taken out for big-ticket items.
In the table below, we detail the differences between revolving credit and installment loans:
Revolving Credit Vs. Installment Loans
| Revolving Credit | Installment Loans |
|---|---|
| Are mainly used for making small to midsized purchases and managing cash flow | Are mainly used for big purchases, such as a home, car, or college tuition |
| May have varying monthly payments, depending on the loan | May have the same payment every month, depending on the loan |
| May have higher interest rates (varies) | May have lower interest rates (varies) |
| May be easier to apply and qualify for | May involve more paperwork and be harder to qualify for |
Frequently Asked Questions
When you should use revolving credit is entirely dependent on your situation. For example, revolving credit from a HELOC can help cover home renovations or repairs, which can be an effective use of revolving credit.
A good amount of revolving credit may vary, depending on your circumstances. You may want to consider your spending habits and financial needs. In some cases, a higher credit limit could benefit you, especially if you’re not planning to access all of the available credit. That may be because keeping your credit utilization ratio (the amount of credit that you’re using as a percentage of your available credit) low could help your credit score.
Paying off monthly balances in full and maintaining a low credit utilization ratio can help improve your credit score. Conversely, carrying balances over every month and maintaining a high credit utilization ratio can negatively impact scores.
Paying off your revolving credit can be a smart move, but this may depend on your situation. In some cases, paying off your balance in full each month could help to reduce interest charges and reduce debt.
The Takeaway
Revolving credit may allow you to borrow as needed from a set limit. As you pay the amount back, you can borrow from the limit again. Two main types of revolving credit are credit cards and lines of credit. Understanding revolving credit and how it works can help you decide on the best financing option for your needs.
1,2,3 “What Is Revolving Credit?,” Experian
4 “Common types of installment loans and their best uses,” Bankrate
Karen Lynch is a journalist who has covered global business, technology, finance, and related public policy issues for more than 30 years.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
How to Pay Off Credit Card Debt
Explore how to choose a debt reduction approach to help pay off your credit card debt.
Different Types of Credit Cards
Understand how different types of credit cards cater to specific needs. Choose from travel rewards, cash back, and more to find a credit card that’s right for you.
Average U.S. Credit Card Debt
Credit card debt is on the rise. Look into the numbers behind average U.S. credit card debt and how it increases with age.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
