What is a Revolving Line Of Credit?

A revolving Line of Credit is a flexible borrowing option that allows you to withdraw funds multiple times up to a pre-determined credit limit. 

Unlike a traditional loan that provides a lump sum, a revolving Line of Credit provides ongoing access to funds as needed. This type of credit may be worth considering if you have recurring expenses or open-ended projects and aren’t sure how much you need to borrow. 

Revolving Line of Credit definition 

A revolving Line of Credit is a type of open-ended loan with a pre-approved borrowing limit. Let’s say you’re approved for a $1,000 credit line, but you only need $400 today. You schedule the $400 draw knowing you’ll need to repay that amount plus interest. $600 remains as “available credit” on your account; it will remain there without charging interest until you withdraw more. 

If you don’t like the idea of a revolving Line of Credit, you may want to consider a type of non-revolving credit that you pay back in one installment, such as a Payday Loan or Cash Advance. 

How revolving credit works 

A revolving Line of Credit lets you borrow money whenever you need it — as long as you have available funds in your credit line. Here’s a simple breakdown of how it works: 

1. Get approved for a Line of Credit. You can apply for a Line of Credit from banks, credit unions, or direct lenders. Your lender will determine your maximum credit limit and the terms and conditions of the loan. 
2. Borrow money up to your credit limit. You can take out as much or as little money as you want, up to your credit limit. 
3. Repay what you borrow. When you pay back the money you borrowed, that amount becomes available for you to borrow again. 
4. Keep your account open as long as you choose. As long as you make your monthly payments, your credit line remains open and available until you decide to close it. 
5. Make your monthly payments. You can pay off what you owe in full or make the minimum payment. Any remaining balance is carried over to the next month, and you’ll be charged interest on any unpaid balance. 
6. Enjoy your flexible and revolving credit. Use your revolving Line of Credit to manage regular expenses, cover unexpected costs, or pay for ongoing projects. 

Examples of revolving credit 

Revolving credit can be either secured or unsecured. Here are the most common types: 

Personal Line of Credit 

A personal Line of Credit lets you withdraw money up to a set limit. You only pay interest on the amount borrowed, and any funds you pay back become available to borrow again. This revolving credit is typically unsecured, so you don’t need any collateral. 

Home equity line of credit (HELOC) 

A HELOC allows you to borrow against your home's equity (market value minus mortgage balance). During the draw period (5 to 10 years), you can borrow up to your credit limit. You then repay the principal and any interest on the amount borrowed. 

Business line of credit 

Business lines of credit are similar to personal credit lines but are designed exclusively for business needs. They can be used for payroll, expenses, improvements, equipment, and more, and are available to businesses of every size. 

Credit card 

A credit card is a popular type of revolving credit. You can spend up to the set credit limit, repay it with interest, and spend again. Depending on the card, you can earn rewards like cash back and travel points. If you pay off what you borrow each month, you won't pay interest. 

Each type of revolving Line of Credit has its own advantages and disadvantages, so it’s important to choose the credit line that’s right for you. 

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Revolving credit vs. Installment Loans 

Revolving credit offers ongoing access to a set amount of money for as long as the account remains open and in good standing. You can repay revolving credit by making minimum payments or by paying off what you borrow in full. 

Installment Loans are personal loans that provide you with funds in a single lump sum. Use the money for whatever you need and repay the loan over time in regular installments. 

Common uses for revolving credit 

Because revolving credit provides ongoing access to a small to moderate amount of funds, it could be good for covering: 

• Utility bills, gas, and other recurring expenses 
• Student loan and other recurring payments 
• Ongoing home improvement projects 
• Monthly payments on medical bills or auto loans 

Common uses for Installment Loans 

Installment Loans are generally a better option for large, one-time expenses, such as: 

• Replacing a home appliance 
• Paying off a substantial bill 
• Debt consolidation 
• Purchasing furniture or other big-ticket items 

Tips for using a revolving Line of Credit 

If you decide to use a revolving Line of Credit, consider the following: 

Borrow only what you need 

Having a revolving Line of Credit at your disposal can make it easy to over-borrow. Since doing so can cause you to accumulate more debt, only borrow what you need. You could always withdraw more funds if you need to later. 

Make on-time payments 

Once you withdraw money from a revolving Line of Credit, be sure to make your payments on time. This will allow you to continue borrowing funds from your account and avoid extra fees and interest charges. 

Pay more than the minimum whenever possible 

When you borrow from a revolving Line of Credit, you’ll typically need to make a minimum payment at the end of every month or billing period. But, if you pay more than the minimum payment, you’ll save money on interest. 

Choose the right type of revolving credit 

Credit cards are one of the most common types of revolving credit, but they often have low credit limits and high interest rates for borrowers with bad credit. And not everyone will qualify for a HELOC or business line of credit. 

Open a revolving Line of Credit today 

At Advance America, we offer personal revolving Lines of Credit online or in-store. Depending on what time you’re approved, you may even receive funds from your first draw the same day. Apply now to see how much you can borrow. 

Revolving Line of Credit FAQs 

Does a revolving Line of Credit affect your credit? 

A revolving Line of Credit can either hurt or help your credit score. If you regularly repay whatever you withdraw from your credit line, it may boost your credit score, but only if your lender reports your payment activity to the credit bureaus. On the flip side, if you make late payments or fail to repay what you borrow, your credit score may go down. 

How much can you get from a revolving Line of Credit? 

Your lender determines how much money you can borrow with a revolving Line of Credit. Traditional lenders, such as banks and credit unions, often have higher borrowing limits than direct lenders, but they’ll also require you to have a higher credit score. 

Advance America and other direct lenders don’t have the same credit score requirements. Depending on your state’s borrowing limits, you may be able to open a credit line with up to $3,000 available credit. 

Is it good to have revolving credit? 

Having revolving credit could be beneficial if you think you’ll need ongoing access to extra funds. Whether you need to pay utility bills, cover everyday expenses, or fund one-time purchases, revolving credit offers ready access to money when you need it most.