What Does the Term "Revolving" Mean on a Credit Report?

By Cellina LaForey

  • Overview

    What Does the Term
    What Does the Term "Revolving" Mean on a Credit Report?
    The credit report is an important factor in determining whether or not consumers will be approved for a loan, get a job or even rent an apartment. Understanding what is on a credit report is important. It is especially important to keep track of revolving credit, as revolving credit accounts can significantly impact one's credit score.
  • Revolving Limit

    A revolving credit limit allows consumers to reuse the line of credit as long as they comply with the terms and conditions of the credit agreement. In other words, as long as the monthly statements are paid on time and the maximum credit limit is not reached, consumers can continue to use the credit, pay the balance and reuse the credit again. In other words, it's a revolving balance. Credit cards and lines of credit are considered revolving credit accounts. A loan is not a revolving line of credit. Once a consumer pays the outstanding balance of the loan, the loan is complete and the relationship is over. There is no further access to the line of credit.
  • Monthly Payments

    Monthly payments on a revolving credit account are based upon the outstanding balance plus interest. Therefore, if a revolving credit account is frequently used, the monthly payment can vary. The lower the balance on the revolving credit, the lower the monthly minimum payment required. Conversely, utilizing most of the available balance on a revolving credit account increases the monthly minimum payment.

  • Over the Limit

    Over-limit fees can apply to revolving accounts when consumers either over charge on the account or neglect to pay the monthly bill, thus causing the interest to accumulate and increase the outstanding balance, forcing it to go over the limit. Credit agencies look upon excessive over-limit charges as a sign of financial trouble. It will negatively affect a consumer's credit score.
  • Closing Accounts

    Leaving a zero-balance revolving credit account open on credit reports actually works to the consumer's benefit. It lowers the ratio of outstanding credit to available credit. A ratio of 20 percent means that one is only using 20 percent of the available credit. It's much more favorable than having a ratio of 85 percent. High ratios of outstanding debt to available credit raise a red flag of being financially over extended. Non-revolving accounts are automatically closed. Once a loan is paid off, it's done. Consumers cannot access the available balance; therefore, it is important to keep revolving accounts open to help improve the outstanding to available credit ratio.
  • Reviewing Credit

    Consumers should request a free copy of their credit report annually. AnnualCreditReport.com provides credit reports from all three credit reporting agencies at no charge. By obtaining a copy of the credit report, consumers can keep track of their revolving credit accounts and view the same financial information that creditors look at before approving or denying credit.
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