Revolving Credit Cards
Most typical credit cards are “revolving cards,” meaning you can carry a balance and make minimum monthly payments. Revolving credit cards get their name because they don’t have a fixed number of payments like installment accounts do, and the balance can fluctuate over time.
With installment accounts, there is usually a set amount that needs to be paid down in a set amount of time. An example would be an auto loan with a $5,000 balance and a term of 36 months to pay it off.
Revolving credit card accounts allow cardholders’ to withdraw money and make purchases up to their credit limit, and pay the balance back slowly or all at once. If they choose to carry a balance, finance charges will apply based on their APR.
Revolving credit card accounts also stay open until the cardholder decides to close the account. This means there is no set expiration date, or termination date. And over time, the creditor will likely raise the credit limit, increasing the amount a cardholder can borrow.
Revolving credit cards are a good choice if you want to have more freedom to spend, but don’t always want to pay back the full balance each month. There may be times when you need to carry a balance to pay for emergency items, or simply months when your cash flow is low, but you still have essential purchases that need to be made.
You may pay finance charges with a revolving credit card, but if you’re wise, you can find a 0% APR credit card for 12 months. This essentially allows you to carry a balance, pay only the minimum payment each month, and avoid finance charges for a full 12 months.
Keep in mind that most American Express credit cards are installment accounts, meaning they must be paid in full each month. But the American Express Blue card and the American Express Clear card are both revolving credit cards which allows you to pay over time as mentioned above.
Other examples of revolving credit include lines of credit and home equity lines of credit. These allow you to withdraw what you need, and pay back over time or all at once.