Revolving Credit Definition and Examples (2024)

FAQs

What is revolving credit examples? ›

Common examples of revolving credit include credit cards, home equity lines of credit (HELOCs), and personal and business lines of credit. Credit cards are the best-known type of revolving credit. However, there are numerous differences between a revolving line of credit and a consumer or business credit card.

Revolving credit accounts are open-ended debt. They don't have an expiration date and generally stay open as long as the account is in good standing. As money is borrowed from a revolving account, the amount of available credit goes down. As the debt is repaid, the available credit goes back up.

Credit cards and lines of credit are both examples of revolving credit.

What is revolving credit? A line of credit that you can continually make loans on. Payments are made monthly which are usually just the interest.

On the other hand, when you take out student loans or a mortgage on a new house, that's known as non-revolving credit. This type of credit is a lump sum which you pay back only once, instead of a revolving line of credit, which you can pay back and then access again.

For instance, a Revolving LC is granted INR 120,000 over six months for products costing INR 20,000 each month. Each month, the exporter is limited to shipping and collecting payment for only INR 20,000 worth of products.

Cons of revolving credit

Higher interest rates: Revolving credit accounts typically come with higher interest rates than loans. Interest can become very problematic if you don't pay your account in full every month. Fees: Some revolving credit accounts require you to pay annual fees, origination fees, or other fees.

To maintain a healthy credit score, it's important to keep your credit utilization rate (CUR) low. The general rule of thumb has been that you don't want your CUR to exceed 30%, but increasingly financial experts are recommending that you don't want to go above 10% if you really want an excellent credit score.

Revolving accounts are available for both individual and business customers. They require a standard credit application that considers financial factors like your credit history and debt-to-income ratio. You can usually apply for a revolving credit product online, often getting approved that day.

Typically, instalment credit comes with a set pay-off period. However, revolving credit lets you use the funds repeatedly. Interest rates in a revolving credit facility are fixed. The interest rate does not depend on external factors like the applicant's creditworthiness, income or existing financial obligations.

Is revolving credit short term? ›

A revolving credit arrangement with a required lockbox is inherently short-term based on the definition of a current liability because a lockbox requires that the debt be serviced with working capital.

Revolving debt usually refers to any money you owe from an account that allows you to borrow against a credit line. Revolving debt often comes with a variable interest rate. And while you have to pay back whatever you borrow, you don't have to pay a fixed amount every month according to a schedule.

Revolving credit, particularly credit cards, can certainly hurt your credit score if not used wisely. However, having credit cards can be great for your score if you pay attention to your credit utilization and credit mix while building a positive credit history.

Credit cards and credit lines are examples of revolving credit. Examples of installment loans include mortgages, auto loans, student loans, and personal loans.