Revolving credit

Definition

Revolving credit is a type of credit that allows the borrower to use or withdraw funds up to a pre-approved limit, repay it, and borrow again as needed. It is commonly associated with credit cards and lines of credit.

5 Must Know Facts For Your Next Test

1. Interest is charged on the outstanding balance if not paid in full by the due date.
2. There is typically a minimum monthly payment required.
3. The borrowing limit can be adjusted based on the borrower’s creditworthiness.
4. Revolving credit accounts can remain open indefinitely if managed properly.
5. Frequent use and timely repayment of revolving credit can positively impact your credit score.

Review Questions

• What happens if you do not pay off your revolving credit balance in full by the due date?
• How can revolving credit affect your overall credit score?
• What are some common examples of revolving credit?

Related terms

Credit Limit: The maximum amount that can be borrowed on a revolving credit account

Minimum Payment: The smallest amount you must pay each month to keep your account in good standing

Credit Utilization Ratio: The percentage of available revolving credit being used, which impacts the credit score