What Is Revolving Debt and How Does it Affect Your Credit?

what is revolving debt

A good credit score signifies that your financial situation — along with other aspects of your life — is on the right track. For this reason, creditors, landlords, and even prospective employers check this data to learn more about how financially responsible a person is.

For this reason, individuals with high credit scores enjoy various benefits, including better insurance rates, lower interest rates for cards and loans, and higher credit limits.

Boosting your credit ensures that you don’t delay building your wealth or enjoying your retirement. So, how do you achieve this feat?

One of the fastest ways to lift your credit score is to pay down your revolving debt as much as you can to lower your utilization percentage.

So, what is revolving debt and how does it impact your credit? This article will discuss everything you need to know about using revolving debt to achieve your financial goals.


What Is Revolving Debt?

Revolving credit is a type of credit that doesn’t have a fixed number of payments, unlike its installment counterpart. Your total revolving credit lines make up your revolving debt — which isn’t unusual at all.


In fact, the latest Statista report shares that the total revolving credit outstanding in the U.S. amounts to $1.01 trillion.


Here’s how revolving debt works: When a creditor approves your credit, the issuing financial institution establishes a credit limit you can use repeatedly, whether in whole or in part. Typically, there’s no expiration date for this credit type.

Borrowers typically use revolving debt for short-term and smaller loans. After all, larger loans require more structure, such as installment plans and preset amounts.

Revolving credit implies that a lending institution has pre-approved a business or individual loan. Under this setup, re-evaluation is not necessary for every transaction.

Every payment you make, minus charges, replenishes your available credit limit. As long as your account remains in good standing, you won’t have trouble borrowing against your debt ceiling.

Below are some common examples of revolving debt:

  • Credit Cards - Your credit card transactions fall under the category of revolving debt. Your credit limit dictates the maximum amount you can spend with it. As you pay off your balance, you free up more credit for future use. As much as possible, pay off your bill in full; partial payments usually accrue interest.
  • Personal Lines of Credit - Just like credit cards, this debt type gives you access to a pre-approved amount from a bank or credit union. Once approved, they will give you limited time to draw from the account. The more of your debt you pay, the more of it you can use another time.
  • Home Equity Line of Credit (HELoC) - A HELoC lets you borrow a limited amount, and you can pay back your debt with interest. However, this credit type works like a second mortgage that uses your home equity as capital. With excellent ratings, you can obtain such a loan with lower interest rates compared to other revolving debt options.
  • Margin Investment Accounts - This debt type refers to a brokerage account that allows investors to borrow money for specific investments. It can boost an entrepreneur’s purchasing power. Traders can use financial products like futures, options, and stocks to secure such loans.


How Does Revolving Credit Differ From Installment Credit?

There are two major credit types:

  • Revolving
  • Installment

Installment loans provide borrowers with a fixed amount of money for repayment over a specified period in fixed monthly installments. Auto, mortgage, and student loans are examples of this credit type.

The main difference between the two is that paying off an installment loan closes your account. You can’t simply re-open it and borrow the same amount again.

With revolving credit, on the other hand, you can draw or spend within your limit as soon as you free up more of your balance.

One of the biggest advantages of installment credit is that you know exactly how much you need to pay monthly. This setup makes it easier to set a budget.

However, installment loans don’t offer much flexibility. You can’t make a minimum payment on your debt because you risk losing the asset you’re paying for, like a car or a house.

Revolving credit is also a better indicator of credit risk, making it great for boosting credit scores. Paying installment debt on time will have more of an impact on a person’s credit report.


Benefits of Revolving Credit

Revolving credit can be an excellent source of income for small businesses and individuals. Below are some of the benefits of taking advantage of this debt type:


Readily Available Funds

As soon as a lending institution approves your credit, you can use it on whatever you need. You don’t need to go through a lengthy approval process every time you need more cash.

Also, even if you don’t need money immediately, you’ll have peace of mind knowing that you have access to such funds in the case of an emergency.



Revolving credit allows borrowers to get only the amount they need and pay it back by a set due date. They can pay the debt back in full or in installments.

Note that partial payments for this debt type may lead to massive fees from lending institutions.


Secured Financing Option

Revolving debt can either be secured, like HELoC loans, or unsecured, like credit cards.

One of the major benefits of applying for secured financing is that you can enjoy lower interest rates. You can use various collateral types for it, too, like equipment, inventory, or real estate.


Growing Credit Lines

Lending institutions often follow a frustratingly slow approach to expanding credit lines, except for revolving debt. Banks, credit card companies, and credit unions review revolving credit lines constantly and will not hesitate to raise your limits if you’re a reliable payer.



These debt types — especially credit cards — offer cash back, points, or travel miles for loyal users for every dollar spent. Issuers can offer lucrative rewards because of the interest and fees they collect from their clients.

If you want to make the most from your rewards, apply for everything you qualify for and avoid carrying interest. This ensures that your rewards will outweigh your penalties.


Is Revolving Debt Right for Everyone?

Revolving debt may benefit some businesses and people, but it’s not for everyone. There’s no one-size-fits-all financial solution that addresses everyone’s needs.

We only recommend utilizing revolving debt if you use it carefully. Remember, mishandling your payments can lead to massive penalties.

Revolving debt can help you impact your credit positively if you follow these tips:

  • Low credit utilization: Too much revolving debt can bring your credit score down. Try to keep your usage to a maximum of 30%.
  • On-time payments: Payment history is one of the first things credit bureaus check. If you want to boost your score, we suggest making timely payments for your revolving debt.
  • Whole payments: While paying the minimum required amounts may seem convenient, doing so will gain you more charges, and unpaid portions of your debt can eat up your credit utilization rate.

Revolving debt may not be the best solution for you if:

  • You need a lot of money immediately: You can use revolving debt to cover major expenses, like a medical emergency or a massive home repair. However, we recommend considering a non-revolving credit with a fixed timeline for these applications.
  • Your credit history is less than stellar: Lenders are less likely to approve a business or individual without a solid credit history. On the off chance that these institutions approve a borrower with a poor interest rate, the borrower is likely to face high interest rates.
  • You constantly max out your limit: Credit bureaus check credit utilization rates when determining credit scores. If you hit your credit limit often, this signifies financial distress, damaging your credit score.


How Does Revolving Credit Impact Credit Scores?

Any time you spend on credit, it may affect your credit score and therefore impact lenders’ view of your creditworthiness. This is why every move you make regarding your revolving credit impacts your FICO rating.

Below are some revolving credit components that creditors keep an eye on:


Payment History

The most critical factor regarding your debt is your payment history, which accounts for 35% of your score. It includes information on whether you make timely payments and how often you miss them.

In most cases, lenders report payments made 30 days after the due date to credit bureaus.

Missing payments is the worst thing you can do for your reputation as a borrower. As much as you can, try to cover at least the minimum amount due from your revolving credit.


Debt Amount

The amount of your debt accounts for 30% of your score. Maxing out your revolving credit across various institutions sends a red flag to potential lenders.

It’s best to maintain a credit utilization of 30%. For instance, if you have a $5,000 limit, a $1,500 carrying balance would be ideal.


Credit History

Creditors want to see a stable relationship between you and lending institutions. For this reason, your credit history accounts for 15% of your FICO score.

In a nutshell, the older your revolving debt accounts, the better.

Additionally, new accounts affect your score, too. New credit makes up 10% of your score because opening too many accounts at once signifies a desperate need for cash.


Credit Mix

Credit bureaus check your credit mix for the final 10% of your score. Creditors prefer businesses and individuals that manage various debt types, including revolving and installment loans.

A healthy combination of credit cards, home loans, and auto loans may improve your score.


Boost Your Credit Score With These Tips

Now that you know the components of revolving debt that affect your credit score, here are some tips to improve it:

  • Pay bills on time: Meet your due dates to a T. If you can’t make a full payment, it’s better to make a partial one than none at all.
  • Minimize unnecessary spending: If you avoid spending too much from your revolving credit, you’ll keep your credit utilization low, which looks good to credit bureaus.
  • Accept a higher limit: If a lending institution offers you a higher debt ceiling, accept it even if you don’t need more cash flow. Doing so will further lower your utilization ratio.
  • Don’t close your account: It’s okay to keep revolving accounts open even if you don’t use them much. After all, they contribute to your credit history and mix, which together account for 25% of your FICO score.

Open a Revolving Account Now

Revolving debt is the combination of various credit types that don’t require a fixed number of payments. Instead, it implies pre-approval to borrowers.

Every payment you make toward your debt frees up space in your credit limit again, just like in credit cards. It’s ideal for small, short-term loans you can use to boost your cash flow.

Do you want to open a revolving account now? Do it with 121 Financial Credit Union.

We at 121 Financial Credit Union have met our community’s financial needs since 1935 through our wide range of services. We offer lower rates than other lending institutions, helping our members achieve their financial goals.

Book an appointment with one of our specialists now to secure your financial future.

Back to Blog

Related Articles

What Is Inflation and How Does It Affect You

As of June 2022, inflation in the United States has peaked at the highest rate in the last 40...

121 Financial's Great CAR SALE! of 2019 | 121 Financial Credit Union

Northeast Florida’s Greatest CAR SALE! Ever

Debt Free Living: 5 Ways To Get Out of Debt Fast

Debt-free living is a way of life that can make you happier, healthier, and more successful. It's...