Logo

Revolving Credit

September 7, 20234 min read

{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.

A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.

What is Revolving Credit?

Revolving credit is a type of credit that lets you borrow money as needed up to an amount called your credit limit. Borrowing reduces your available credit, and repayment replenishes your credit limit (minus the interest and fees charged). Revolving credit does not have a fixed number of payments. This differs from installment credit which lets you borrow a lump sum and pay it back over a set number of fixed monthly payments.

How Does a Revolving Line of Credit Work?

It helps to think of a revolving line of credit as a renewable source of funds within a set credit limit. The lender sets the credit limit upon application approval. You can use as much of your credit limit as you need, paying interest only on the money you borrow. As you repay what you’ve borrowed (plus interest and fees), your available credit replenishes, and you can continue borrowing against your revolving line up to the credit limit.

Types of Revolving Credit

The most common revolving credit products are lines of credit and credit cards.

Lines of credit come in different forms, including home equity lines of credit (HELOCs), personal lines of credit, and business lines of credit. Credit lines are typically issued by banks and credit unions, and generally you can draw on your line using special checks, ATM, telephone, and online banking. You’ll only pay interest on the money borrowed from your line of credit.

Some lines of credit may be limited in how the funds can be used, such as only for balance transfers from credit cards.

Credit cards are revolving credit accounts that, unlike lines of credit, require you make a purchase or cash advance to access your credit line. While card issuers reserve the right to change your credit limit, you can access your available credit as long as your account is in good standing. When you make purchases on a credit card, you can repay the balance in full by the end of your billing cycle to avoid interest charges and fees. If you don’t pay your outstanding balance in full,the balance “revolves,” or rolls over, to the next month and will accrue interest until paid in full.

Note: Both lines of credit and credit cards can be secured or unsecured. Secured accounts require collateral; unsecured accounts do not. For example, a HELOC uses your home as collateral. Credit cards are typically unsecured, but some secured cards require cash deposits as collateral.

Why is Revolving Credit Important?

Revolving credit offers greater borrowing flexibility than installment credit. For instance, if you get a $10,000 installment loan for a home remodeling project, you typically receive all the money at once and must start repaying on the entire loan balance immediately plus interest on that amount—even if you don’t use the funds right away. If you need more money, you’ll have to apply for a new loan.

On the other hand, if you get a line of credit or credit card with a $10,000 limit, you can draw on it as needed—say, $1,000 in January, $2,000 in April and $1,500 in June­—and interest will accrue only on the amounts you borrow. As you pay back what you’ve borrowed, your available credit is restored up to your credit limit, so you can make future purchases without needing to apply for additional credit.

Since it doesn’t require fixed monthly payments, revolving credit can also offer greater payment flexibility than installment loans. If money is tight in a particular month, you have the option of only making the minimum payment on a revolving account, potentially making it easier to meet other financial obligations.

Revolving credit can also serve as a financial cushion. Even if you never use it, it’s there in case you need quick access to small amounts of cash in an emergency.

What Are the Risks of Revolving Credit?

Revolving credit has some drawbacks you should be aware of.

Collateral risk: If you fail to make payments on a secured revolving credit account, you could lose your collateral. With a secured credit card, that loss could be a few hundred dollars. With a HELOC, you stand to lose your home.

High interest rates: Revolving credit typically has higher interest rates than installment credit. Interest rates for most credit cards and many lines of credit are also variable, meaning they can change over time based on economic conditions.

Excessive debt: If you only make the minimum payment on a credit card, you could accumulate a large balance. Credit card interest is typically compounded, meaning interest accrues on both the balance of your purchases and on previously applied interest. Compound interest can cause your balance to snowball until it’s difficult to pay down.

How Does Revolving Credit Affect Your Credit Score?

Revolving credit could help your credit score in several ways.

  • On-time payments: Making revolving credit payments on time could boost your credit, since timely payments are a major factor in your FICO® Score.

  • Responsible credit utilization: Keeping your revolving credit balance below 30% of your credit limit could increase your credit score. Ideally, you would pay your credit card balances in full each month.

  • Diverse credit mix: A variety of accounts, including installment credit and revolving credit, could show lenders you can successfully manage different types of debt.

Revolving credit could also have negative impacts on your credit score when not managed responsibly.

Late payments: Missing payments could have a significant negative impact on your credit score. Setting up auto-payments on your revolving credit accounts can help ensure you never miss a due date.

Excessive credit utilization: Consistently carrying balances that exceed 30% of your available credit limit can reduce your credit score.

Hard inquiry: When you apply for revolving credit, creditors perform a credit check called a hard inquiry, which could cause a small, temporary dip in your credit score.

You May Also Like

Related Resource Center
If you're planning on consolidating debt or making a big purchase like buying a home or new car, chances are you'll need financing to help reach your goals. Understanding the true cost of a loan is key to getting the best deal possible—and most often that starts with shopping APRs and interest rates across different lenders.
Jul 15, 2024
6 min read
Woman in yellow shirt in coffee shop writing in notebook in front of laptop
Your credit score plays a key role in nearly every aspect of your financial life—from the rates you receive on loans to applying for utility services and cellphone plans. Given how often those numbers will come into play, it is a smart move to aim for the best scores you can.
Jul 13, 2024
9 min read
What Affects Your Credit Scores?
To open a business bank account, you’ll need to choose a bank, gather documentation to apply, and have funds on hand for an initial deposit.
Jul 9, 2024
5 min read
How to Open a Business Bank Account
Identity theft happens when your personal information is stolen and used without your permission. Understanding the warning signs, knowing how to protect your information, and what to do if your identity is stolen can help keep your identity safe and recover faster. 
Jul 6, 2024
9 min read
Preventing Identity Theft
Sticking to a budget can be challenging, but having a clear goal and rewards can help you stay on track.
Jun 27, 2024
4 min read
Person in blue shirt sitting at desk with notebook, laptop and phone
Related Impact
From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.
Nov 13, 2022
2 min read
blog header stackit 765x430 v1-1
Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals.
Oct 2, 2022
5 min read
LendingClub Rewards Checking Nationally Certified as Trusted, Afforda
Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.
Apr 19, 2022
2 min read
Illustration of large number 4 and letter M made up of colorful, tiny illustrations of ethnically diverse people
In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 
Mar 6, 2022
less than a minute read
Blog-post
LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  
Jan 2, 2022
2 min read
Man in blue button up shirt and glasses smiling
Related FAQ's
We offer several ways for you to make your monthly auto loan payment, so you can choose the method that works best for you. A statement will be mailed to you every month that shows the payment amount and due date.
Nov 29, 2023
less than a minute read
LendingClub provides a year-end statement that summarizes your account activity, including how much interest you’ve earned and information regarding Notes tied to loans that have been charged off.
Jun 7, 2023
less than a minute read
Adding creditors to your balance transfer loan is easy.
Jun 7, 2023
3 min read
To qualify for a lending product with LendingClub Bank, you must...
Jun 7, 2023
less than a minute read
Applying for a lending product is fast, easy, and confidential.
Jun 7, 2023
less than a minute read
Related Glossary
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
Mar 21, 2023
3 min read
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 
Mar 21, 2023
4 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Feb 7, 2023
3 min read
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
Feb 4, 2023
3 min read
{noun} A loan used to pay off one or more debt accounts, usually to change interest costs, monthly payment, and/or payment term.
Jan 28, 2023
4 min read

Unless otherwise specified, all credit and deposit products are provided by LendingClub Bank, N.A., Member FDIC, Equal Housing Lender (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Credit products are subject to credit approval and may be subject to sufficient investor commitment. Credit union membership may be required. Deposit accounts are subject to approval. Deposit products are FDIC-insured up to $250,000 per depositor, per ownership category.

"LendingClub" and the "LC" symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.