Revolving credit
A line of credit (most commonly a credit card) you can borrow against repeatedly up to a limit, paying only a minimum each month.
Revolving credit is a borrowing arrangement where you have a credit limit, can borrow up to that limit, repay any amount, and immediately borrow again. The opposite is installment credit — a loan with a fixed amount, fixed payments, and a fixed end date (car loans, mortgages).
Credit cards are the most common form of revolving credit. Home equity lines of credit (HELOCs) and personal lines of credit also work this way.
The dangerous feature of revolving credit is the minimum payment. Pay only the minimum and the balance can take decades to clear at typical credit card rates — a $5,000 balance at 22% APR with only minimum payments takes 22 years to pay off and costs over $7,000 in interest.
Used responsibly (paying the full statement balance each month), revolving credit is a free month-long loan plus rewards. Used as revolving debt, it's among the most expensive borrowing available outside of payday loans.
Credit utilisation — the % of your limit you're using — is a major credit-score factor. Keeping balances under 30% of the limit (ideally under 10%) helps your score even if you pay in full.
See also
- Credit score — A three-digit number (usually 300–850) lenders use to estimate how likely you are to repay borrowed money on time.
- APR (Annual Percentage Rate) — The yearly cost of borrowing money, expressed as a percentage and including most fees — not just the interest rate.
- Minimum payment trap — Paying only the minimum on revolving debt keeps you in debt for years and triples or quadruples what you originally borrowed.
Ask Cashowa about revolving credit
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