What Are Revolving Credit Cards?

Most credit cards are “revolving credit cards,” meaning you can carry a balance and make minimum payments each month. Revolving credit cards get their name because they don’t have a fixed number of payments like installment accounts, and the balance can fluctuate over time.

With installment accounts, there is a set amount that needs to be paid down in a certain 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 (in equal installments).

There aren’t really any true installment credit cards, but there are charge cards that require the entire balance to be paid each month. Their purpose isn’t to increase spending ability like revolving credit cards, but rather a convenient cash alternative.

How do revolving credit cards work?

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 the cardholder chooses to carry a balance, finance charges will apply based on the associated credit card APR.

Revolving credit card accounts stay open until the cardholder decides to close the account. This means there is no set expiration date (aside from a temporary one), or termination date. Over time, the creditor will likely raise the credit limit, increasing the amount a cardholder can borrow, assuming they make on-time payments.

Who are revolving credit cards good for?

Revolving credit cards are a good choice if you want more freedom to spend, but don’t always want to (or can’t) pay back the entire 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 still have essential purchases that need to be made.

As mentioned, you could wind up paying finance charges with a revolving credit card if you carry a balance, but if you’re savvy, you may be able to find a 0% APR credit card for 12 months or longer. These essentially allow you to carry a balance, make only the minimum payment each month, and avoid finance charges for a full year or longer.  Offers tend to be plentiful for both purchases and balance transfers.

Keep in mind that most American Express credit cards are charge cards, meaning they must be paid in full each month. But there are several American Express cards with no annual fee that happen to be revolving credit cards, which allow you to pay over time. In fact, I use one frequently; their Amex Blue Cash card.

Most Discover, Citi, and Chase credit cards are also revolving credit cards.  Ultimately, you’re more likely to apply for a revolving credit card than a charge card because they’re much more common.

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 it back over time or all at once.

Just keep in mind that you run the risk of spending beyond your means with a revolving credit card, so a charge card may be better for those who aren’t responsible enough to use an open-ended line of credit.

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