Revolving Credit
A borrowing arrangement with a preset credit limit that can be drawn, repaid, and reused repeatedly.
What is Revolving Credit?
Revolving credit is a type of open-ended credit that allows a borrower to repeatedly borrow, repay, and reborrow up to a set credit limit without reapplying for a new loan. Unlike installment loans—which have a fixed disbursement, schedule, and end date—revolving credit accounts remain open and flexible as long as the borrower remains in good standing. Common examples include credit cards, home equity lines of credit (HELOCs), and business revolving credit facilities. The borrower pays interest only on the outstanding balance drawn, not the full credit limit. Minimum monthly payments are required, and carrying a high balance relative to the credit limit—a measure called credit utilization—negatively affects credit scores. Revolving credit accounts are a key component of credit scores, with both payment history and utilization ratio factoring significantly into FICO calculations.
Example
A borrower has a $10,000 revolving credit card. In January they charge $4,000 and pay only the $120 minimum. In February they pay off the full $4,000 balance, restoring the $10,000 limit. In March they charge $2,500 for home repairs. The balance can flex up and down each month, distinguishing revolving credit from a fixed-term installment loan.
Source: Consumer Financial Protection Bureau — Revolving Credit