What is Revolving Credit?

Whether you’ve decided it’s finally time to remodel your master bathroom or you’re gearing up for a cross-country move, you need easy ways to access funds. That’s where revolving credit comes in.

Think of revolving credit as your financial Swiss Army knife—versatile, reliable and ready when you need it. Unlike traditional loans that give you a one-time lump sum with fixed payments, a revolving line of credit offers access to funds you can tap into whenever opportunity knocks. It can be a lifesaver when you need it—and a convenience even when you don’t.

What is revolving credit?

Revolving credit lets you borrow money through a credit account (up to a set limit), pay it back and then borrow again without applying for a new loan. Think of it like a financial water tap you can turn on when you need money and turn off when you don’t.

Revolving credit is tied closely to how credit cards work. Say you have a credit card with a $5,000 limit. You spend $1,000 on a new kitchen appliance, leaving $4,000 available to use. The next month, you pay back $300. Now you have $4,300 available to spend again.

This cycle of borrowing, repaying and having that money available again is why it’s called “revolving” credit. Credit cards are the most common type of revolving credit account, but home equity lines of credit (HELOCs) and personal credit lines work similarly.

What is the difference between revolving credit and regular credit?

Revolving credit is one of three main credit types. Each type works best for different needs, but revolving credit is great for ongoing expenses or when you need money on hand for various situations.

Many people use a combination of revolving and installment credit accounts as part of a healthy financial strategy. Revolving credit offers flexibility for ongoing expenses; installment credit provides structure for major purchases. 

What are the advantages and disadvantages of revolving credit?

Revolving credit offers many benefits, but it’s important to understand both the pros and cons before deciding if it’s right for you. Here’s what you should know.

With revolving credit, you can repeatedly borrow up to your limit, make variable payments based on what you’ve used and keep the account open indefinitely. Installment credit works differently: you receive a set amount once, make the same payment each month until a specific end date and can’t reborrow without applying again.

Common examples of revolving credit

There are several types of revolving credit you might use in your daily life. Each works a bit differently but follows the same basic principle of borrow, repay and borrow again. Here are the three most common types:

• Credit cards. A credit card provides a credit line that allows you to spend up to a predetermined limit based on your credit history and income. You’ll receive a monthly statement showing your purchases, minimum payment due and due date. Pay your full balance on time, and you typically won’t pay interest on purchases. Many cards also offer rewards like cash back or travel points, making them useful for everyday spending.
• Home equity lines of credit (HELOCs). If you’re a homeowner with equity built up in your property, a HELOC can let you borrow against that equity—usually up to 85% of your home’s value subtracting what you still owe. Since your home secures the loan, HELOCs typically offer lower interest rates than credit cards. Most HELOCs have a 10-year "draw period" when you can borrow, followed by a "repayment period." They’re great for different use cases like home improvements, education expenses or consolidating higher-interest debt.
• Personal lines of credit. Personal lines of credit work like credit cards but often come with lower interest rates and no physical card. When approved, you can transfer funds to your checking account as needed, up to your approved limit. They often provide more favorable terms for larger expenses such as funding projects or handling medical costs.

How does revolving credit work?

Understanding how revolving credit works can help you use it wisely. Let’s break down the key parts:

• Credit limits. When you’re approved for revolving credit, the lender sets a maximum amount you can borrow that’s called your credit limit. This limit is based on your income, credit score and other factors. Your available credit is how much of your limit you can still use. For example, if you have a $3,000 limit and spend $500, your available credit is $2,500.
• Minimum payments. Each month, you need to make at least the minimum payment on what you’ve borrowed. This amount is usually a small percentage of your balance (often 2-3%) or a set dollar amount—whichever is greater. Paying just the minimum is allowed, but it means you’ll pay more in interest and take longer to clear your debt.
• Interest rates. The interest rate on revolving credit is the cost of borrowing money, shown as an annual percentage rate (APR). Credit cards typically have variable rates between 15% and 23%, while HELOCs might have variable rates from 6% to 9%. Interest is charged on the money you borrow and don’t pay back by the due date. If you carry a balance, interest is charged on the unpaid amount.

What are the advantages and disadvantages of revolving credit?

Revolving credit offers many benefits, but it’s important to understand both the pros and cons before deciding if it’s right for you. Here’s what you should know.

When used wisely, revolving credit can be a valuable financial tool. The key is understanding how to maximize the benefits while minimizing the potential drawbacks.

Does revolving credit help or hurt your credit?

Revolving credit can be a powerful tool for building your credit score when used wisely. Your payment history, which includes making on-time payments, is important for maintaining a good credit score. Making on-time payments consistently and keeping your balances low relative to your credit limits show lenders you can manage credit responsibly. The length of your credit history also matters, which is why keeping older revolving accounts open (even if you don’t use them often) may help improve your score.

Your credit journey starts with understanding your options

Revolving credit offers the flexibility and convenience that can fit with life’s changing needs and opportunities. Navy Federal Credit Union offers revolving credit options designed with your needs in mind. Our credit cards feature competitive rates and rewards programs tailored to your lifestyle. For homeowners, our HELOCs provide lower-rate access to your home’s equity for major expenses or debt consolidation.

No matter what expenses you’re paying for or planning for, our team is ready to help you find the right solution. Contact us today to learn more about our revolving credit options.