credit card Archives | Page 22 of 40

Mar

2023

Revolving vs Non-Revolving Credit: Key Differences

One important way that some types of loans or financial products differ is in whether they’re revolving or non-revolving credit. Understanding the differences in revolving vs. non-revolving credit can allow you to better choose which financial product is right for your situation and understand how each can impact your credit.

Revolving credit refers to a line of credit that you can access over and over again, subject to a total credit limit. Credit cards are one type of revolving credit.

Non-revolving credit, on the other hand, allows you to access a specific amount of money upfront. You then pay down your balance. Once it’s paid off, you can no longer access the money. Student loans, auto loans, and mortgages are all examples of non-revolving credit.

Recommended: What is the Average Credit Card Limit?

Understanding Revolving Credit and How It Works

Revolving credit is a type of credit that you can access over an extended period of time. As mentioned, a credit card is one example of revolving credit — you’re given a maximum credit limit, and as long as your outstanding balance remains below that limit, you can continue to use the card. As you pay down your balance, the amount of your revolving credit that you can use increases.

Another example is a personal line of credit. It works similarly to a credit card, with a maximum credit limit and a minimum payment required each month, but there is no physical card included. Instead, you can access the funds with a check, a transfer, or at an ATM. A popular line of credit option is a home equity line of credit (HELOC). In this case, the home serves as collateral, though not all lines of credit are secured.

How Does Revolving Credit Impact Your Credit Score?

Many forms of revolving debt are reported to the major credit bureaus and will show up on your credit report. This means that how you use your revolving credit will impact your credit score.

If you reliably pay off your credit balances each and every month, that will generally have a positive impact on your credit score. However, if you miss payments or carry a high balance, your credit score may go down.

Recommended: When Are Credit Card Payments Due?

Advantages of a Revolving Line of Credit

The biggest advantage of a revolving line of credit is that you’re able to access the funds as you need them. Instead of taking out a large lump sum, you can only borrow the money you need right now. This can help you save money on interest charges, since you only pay interest on your outstanding balance.

A credit card is one of the most popular forms of revolving credit. With a credit card, you’re initially given a credit limit that represents the highest amount of money that you can borrow. As you make purchases, your amount of available credit decreases, but you can raise that amount by making payments to your account.

Recommended: What is a Charge Card?

What Is Non-Revolving Credit?

Non-revolving credit is another type of debt that you’ll want to be aware of. Some popular examples of non-revolving credit are auto loans, student loans and mortgages.

With non-revolving credit, you receive all of your money upfront. As you make payments, your balance decreases, but you are not able to access any additional funds.

How Does Non-Revolving Credit Work?

If you have a non-revolving credit account, you will receive all of the funds you apply for upfront. One example of a non-revolving credit account is an auto loan. If you take out an auto loan, you get the total amount to buy your car at the outset. Then, you’ll make regular monthly payments, which decreases your outstanding balance.

But with a non-revolving credit account like an auto loan, you won’t be able to access any additional money without reapplying and requalifying with your lender.

Benefits of Non-Revolving Credit

One benefit of a non-revolving credit account is that you may be able to qualify for a higher amount and/or lower interest rates. Banks may be more willing to extend you additional credit on a non-revolving credit line, specifically because you won’t be able to continue to revolve the debt amount over time. To illustrate this point, consider the difference in the amount and interest rate between a typical mortgage (non-revolving) and credit card (revolving).

Recommended: How to Avoid Interest On a Credit Card

Revolving Credit vs Non-Revolving Credit

Here’s a quick look at some of the differences between revolving credit vs. non-revolving credit:

	Revolving Credit	Non-Revolving Credit
Access to Money	Can access money over and over, subject to the total credit limit	Just have access to the original amount borrowed
Interest charged	Only on the amount outstanding	On the full amount borrowed
Interest rate	Often comes with higher interest rates	Generally has lower interest rates
Purchasing Power	Relatively lower credit limits	Can qualify for higher amounts

The Takeaway

Credit and debt accounts can be either revolving or non-revolving, and there’s an important difference between the two. With a non-revolving credit account, you receive all of the money at once, and you’re not able to access any additional funds without reapplying with your lender. With a revolving credit account, you are only charged interest on the amount that you choose to borrow at any one time, and you can pay down your balance and access additional funds at any time.

One common form of revolving debt are credit cards. With a credit card, you can make purchases and use your card as long as your outstanding balance is below your credit limit. You’re only charged interest on any amount you don’t pay off from your monthly statement. If you’re looking for a new credit card, you might consider a rewards credit card like the SoFi credit card. With the SoFi credit card, you can earn cash-back rewards, which you can then use to invest, save, or pay down eligible SoFi debt.

FAQ

What is the major difference between revolving and non-revolving credit?

The biggest difference between revolving vs. non-revolving credit is how often you are able to access the money from your credit account. With a non-revolving credit account, you access the total amount upfront, and then are not able to access any additional funds without reapplying. If you have a revolving credit account, you can continue to pay down your balance and access additional money, as long as your balance is below your maximum credit limit.

When should I use revolving credit?

A revolving credit account, such as a credit card, can be a great choice if you don’t have a fixed amount that you’re looking to borrow. If you have a revolving credit line, you’re able to borrow (and pay interest) only on what you need at any one time. And if you later find that you need to borrow additional funds, you can do so with a revolving line, as long as your outstanding balance remains below your total credit limit.

When does a revolving line of credit become mature?

Some revolving letters of credit come with a maturity date. Before the maturity date, you can access the line of credit, pay down the balance, and continue to access additional funds. This is often known as a “draw period.” After the maturity date when this draw period ends, the line of credit converts to non-revolving, and you are no longer able to access additional funds. Make sure to check the terms of your line of credit to understand how this may affect you.

Photo credit: iStock/staticnak1983

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOCC0223004

Mar

2023

What Can You Do With a 700 Credit Score?

If you have a 700 credit score, you’re considered to have good credit. You may qualify for more competitive rates and options in terms of lending products. However, you may not get the best rates available, nor more premium products like luxury rewards credit cards.

That’s because while 700 is a good credit score, it’s not yet in the very good or exceptional range. Here’s a closer look at what a 700 credit score can get you, as well as how you can maintain — or improve — this score.

What Is a 700 Credit Score?

A credit score is a three-digit number ranging from 300 to 850 that is a measure of your creditworthiness. The higher your score, the less risk you pose as a lender — as in, you’re more likely to pay back loans on time. If you have a credit score of 700, it means lenders consider you more likely to pay back your loans on time.

Credit scoring models use your credit history to calculate your score. This information is typically supplied by the three major credit bureaus: Experian, TransUnion, and Equifax.

While a credit score of 700 falls well within the range of ‘good,’ the FICO and VantageScore credit rating scales vary slightly on what’s considered good credit. For the FICO Score, a score from 670 to 739 is considered ‘good,’ whereas for VantageScore that range is 661 to 780.

The differences in how FICO and VantageScore calculate and rate scores is also why you have different credit scores.

Is a 700 Credit Score Good or Bad?

A 700 credit score is considered good, or slightly above average. You may be able to more easily qualify for loans, whereas someone with a bad credit score may struggle to do so. While rates and terms will vary depending on the loan and the lender, applicants with good credit scores will generally qualify for better rates and terms compared to those with lower scores.

Recommended: How to Avoid Interest On a Credit Card

What Can a 700 Credit Score Get You?

A credit score of 700 can help you achieve some of your financial goals, such as buying a house, replacing your car, or even plans like remodeling your home. That’s because you are more likely to qualify for loans that will help you achieve these goals than someone with a fair credit score or worse.

Here’s a closer look at the buying power you may get with a 700 credit score:

• Auto loans: Applicants with 700 credit scores are more likely to be approved for an auto loan. According to an Experian report released in 2022, the average credit score for those who have auto loans for new vehicles is 738.

• Mortgages: Many lenders, even those offering conventional loans, tend to have minimum credit score requirements around below the 700 credit score range. Of course, your credit score is one of many other factors that affect your eligibility for a loan.

• Personal loans: In many cases, lenders will offer you a more favorable interest rate if you apply for a personal loan with a minimum of a 700 credit score. Still, it’s best to check to see what other minimum requirements are.

• Credit cards: You’ll likely have more choices for unsecured credit cards with a credit score of 700, as this is well within the range of the minimum credit score for a credit card. Some cards may offer rewards, such as cash back or points toward flights and hotels. You may even qualify for credit cards that offer a 0% introductory annual percentage rate (APR), which can be helpful if you’re looking to make a large purchase soon or transfer a balance from a credit card with a high interest rate.

Overall, you may also be able to save more money because those with credit scores of 700 or higher can save on interest charges. The thousands of dollars you can save over the lifetime of loans can be used toward your other financial goals, whether that’s retirement savings or a family vacation.

Recommended: What Is the Starting Credit Score?

Factors That Can Affect a 700 Score

If you want to maintain or help build your credit score, it’s important to understand the factors that may affect it. Some of what can affect your 700 credit score includes information found in your credit history from all three major major credit bureaus, including late payments, the length of your credit history, and credit utilization.

Recommended: What is a Charge Card?

Late Payments

Your payment history is one of the most important factors credit scoring models use. Even one late payment could have a negative impact — though the specifics will depend on other factors such as whether you’ve been late on payments before, how late the payment was, and how recent the late payment was.

Recommended: When Are Credit Card Payments Due?

Credit Utilization

Your credit utilization compares the overall limit you have on revolving credit and how much of it you’re using. This number is expressed as a percentage of the available credit you’re using. Like your payment history, it’s also another major factor in calculating your credit score.

The general rule of thumb is that you should try to keep your credit utilization to 30% or less. This shows lenders that you’re not too reliant on credit and are generally responsible with your borrowing. On the flipside, a high credit utilization can negatively impact your score.

Length of Credit History

The longer your credit history, the more it appears to lenders that you have experience using credit. Think of it like a work resume — you’ll have more opportunities to show how you handle various credit and debt accounts.

Recommended: What is the Average Credit Card Limit?

Hard Inquiries

Whenever you apply for a new credit card or other type of loan, lenders will conduct a hard inquiry to look at your credit report. This inquiry will usually affect your credit score negatively, albeit temporarily.

The more inquiries you have, the more it could affect your score. That’s because lenders may view too many hard inquiries as you being stretched too thin financially and needing to rely on loans.

A higher credit score could mean that you’re not applying for new accounts often, or that you’re spacing them out so you don’t seem like you’re too risky of a borrower.

The Takeaway

A 700 credit score can open up more doors for you compared to someone with a lower credit score. You may have an easier time getting approved for a range of loans, and with more competitive terms and interest rates. Just don’t take this score for granted — there’s work required to maintain a good credit score, and there’s even room at this point to further improve your score.

If you’re looking to build your score, a great way to do so is to open a credit card and consistently make on-time payments. Consider opening a SoFi credit card, which is designed to help you with various financial goals. You can earn cash-back rewards points on qualifying purchases, get complimentary cell phone insurance coverage, and pay no foreign transaction fees.

Learn how the SoFi Credit Card can help you achieve your goals.

FAQ

What can be accomplished with a 700 credit score?

You can accomplish different financial goals if you have a 700 credit score. For one, you may be able to make large purchases, such as a new vehicle, a home, or do a large-scale home remodel. That’s because you are more likely to get approved for loans that can help you achieve these types of financial goals.

Can you buy a house with a credit score of 700?

In many cases, lenders have minimum credit score requirements with scores around 620. That being said, there are many other factors that go into whether underwriters will approve you for a mortgage. Some of these qualifying criteria include your debt-to-income ratio, the amount of assets you have, and whether you have a steady source of income.

What percentage of the population has a credit rating above 700?

Nearly 60% of people in the U.S. have a 700 credit score or above. According to data from Experian, the average credit score in the U.S. in 2022 was 714.

How fast can you build a 700 credit score?

How soon you can get a 700 credit score will depend on numerous factors, such as your existing credit history and financial behavior. For instance, if you can improve major factors affecting your score like lowering your credit utilization or consistently paying your bills on time, it could have a noticeable effect quickly. Each person’s financial situation is different, however, so it may take someone months to build their credit score while for others it could take years.

Photo credit: iStock/Peopleimages

Mar

2023

What Does a Credit Score of 800 Mean?

By Sarah Li Cain | Credit, credit card, Financial Independence | Comments Off

On a credit scoring scale of 300 to 850, a credit score of 800 is considered exceptional. Having an 800 credit score has the potential to open up many doors for you financially, including competitive interest rates on loans, higher chances of approval and at better loan terms, and even access to premium credit cards.

As such, when you have a credit score of 800, it’s worth taking steps to ensure you maintain it — or if you’re ambitious, even improve it. That way, you can continue unlocking the benefits that a high credit score can offer.

What It Means to Have an 800 Credit Score

Your credit score is a three-digit number that’s an indicator of your creditworthiness. The higher the number, the more likely you appear to lenders as a responsible borrower who will pay back what’s owed on time.

Credit scoring models count an 800 credit score as being excellent. For instance, a 800 FICO credit score is considered “exceptional,” and VantageScore considers it in their “superprime” range.

These scoring models use your credit history to calculate your score — having such a high score means that you most likely haven’t missed any payments and have maintained a low credit utilization. It could also mean you’ve had a relatively long credit history and held a variety of types of credit and loan accounts — in other words, you’re well past the point of a starting credit score.

To stay at this point on the credit rating scale, you’ll need to keep exhibiting the responsible financial behaviors you’ve already displayed. Further improving it could be a matter of continuing these behaviors over a longer period of time. Or, you might look into your score to see if there’s any one area you can tweak to further improve your credit behavior.

Recommended: When Are Credit Card Payments Due?

Is 800 a Perfect Credit Score?

No, 800 is not a perfect credit score. Both FICO and VantageScore scoring models have a maximum credit score of 850. That being said, an 800 credit score can be considered near-perfect.

Benefits of an 800 Credit Score

Having an excellent credit score comes with a few perks, such as increased odds of getting approved for lower interest rates and higher credit card limits, as well as offers for better loan terms.

Better Credit Offers

Lenders are more likely to approve consumers with excellent credit, and with more favorable terms, compared to someone with a minimum credit score for a credit card. If you have a high credit score, you’re a good candidate for better credit offers, such as personal loans with higher loan amounts and a wider selection of credit cards.

You also may be able to qualify for premium rewards credit cards. These cards tend to offer more benefits like airport lounge access, better earnings opportunities, and more.

Recommended: How to Avoid Interest On a Credit Card

Lower Interest Rates

Lenders generally are willing to lend to those with a credit score of 800 at lower interest rates than other applicants. That’s because people with a credit score in this range generally pose less risk to the lender. With a credit score of 800, you’ve already proven that you can handle loans responsibly.

Getting approved for lower interest rates helps you to save significant amounts of money over your lifetime. For instance, if your 800 credit score gets you a mortgage interest rate that’s 1% to 2% lower than someone with a fair credit score, that alone can save you tens of thousands of dollars over the life of your home loan.

Higher Credit Limits

Not only will you be more likely to get approved for a credit card with an 800 credit score, but credit card issuers may offer you access to higher credit limits. Having increased spending power is great for when you need to make bigger purchases. It’s also helpful for keeping a low credit utilization, which in turn can help you maintain or even boost your credit score.

Since you’re also more likely to be eligible for rewards credit cards, each purchase can help you earn more in points or cash back — meaning, you can use your credit card to maximize your purchases. That deal becomes even better if you can pay off the entire balance each month so you’re not paying any interest.

Monitoring and Managing Your Credit Score

Even if you have an excellent credit score now, it doesn’t mean it will stay that way forever. It’s important to regularly monitor your credit score so you know exactly where you stand.

There are free ways to check your credit score. Some credit cards will show you your score on your credit statements, and some banks offer this feature as well. If your score changes in any way, you can then figure out the types of financial behaviors that may have contributed to the change. Also don’t be surprised if you have different credit scores depending on where you look — this is because credit scoring models can vary in how they calculate scores.

Checking your credit report will also help you monitor and manage your credit score. That’s because the activity on your credit report affects how your credit score is calculated. You can check your credit report for free once a year through all three major credit bureaus: Experian, Equifax, and TransUnion.

By checking your credit report, you’ll be able to see if there is any information on there that may affect your score. If you spot any errors, it’s best to dispute them right away, especially if they’ll have a negative effect.

Factors That Can Damage Your 800 Credit Score

You’ve worked hard to build your credit score. To maintain it, you’ll want to avoid the following behaviors that could damage your 800 credit score. While it’s a long drop to a bad credit score from exceptional, it’s not a given that your good credit will last.

High Utilization Rate

Your credit utilization is the percentage of your available revolving credit that you’re using. The higher the percentage, the more it seems to lenders that you’re relying on too much credit, which could negatively impact your score.

To help maintain your credit score, try to keep your credit utilization to 30% or under. You can do that by paying down your balances, even making extra payments if you can. That way, your balance will be as low as possible before the credit card issuer reports it to the credit bureaus.

Late and Missed Payments

Your payment history is one of the biggest factors that affects your credit score. A late or missed payment could have a major effect on your credit score — even if you’ve paid consistently on-time beforehand.

If you’ve been a responsible borrower, you may be able to contact your creditor and ask to have the late payment removed from your credit report. That way, it won’t impact your score.

Credit Applications and New Credit Accounts

Each time you submit an application for a new loan or credit card, lenders will conduct a hard credit inquiry, which may temporarily affect your credit score. While one hard inquiry may not have major consequences, applying for multiple loan products at once could signal to lenders you’re stretched thin financially. Your score could take a dive, since it looks like you need to rely on credit.

To maintain your credit score, apply for new accounts sparingly. Or, if you’re shopping around for large loans like mortgages, applying for a few within a short span of time will typically show up as one hard inquiry on your credit report. This may prevent your applications from impacting your score as much.

Public Records Appearance

Public records such as bankruptcy can appear on your credit report. These negative remarks can damage your credit score. In some cases, you may have to explain to lenders in more detail about these public records.

Recommended: What is the Average Credit Card Limit?

The Takeaway

Having a 800 credit score means you have excellent credit. As such, lenders are more likely to offer you better rates and terms. Other benefits include saving money on interest and higher credit limits. Even with a high score, it’s still important to continually monitor your credit behavior to ensure you can maintain it.

Looking for a credit card that earns rewards? Consider the SoFi Credit Card, which offers cash-back rewards on qualifying purchases. You’ll also get access to other perks, such as the ability to lower your APR through on-time payments and cell phone protection.

FAQ

How long does it take to reach a credit score of 800?

How long it takes you to get an 800 credit score will depend on several factors, including your current credit score and how long your credit history is. You may be able to reach it faster if you exhibit responsible behavior, such as consistent on-time payments and the maintenance of a low credit utilization ratio.

What percentage of the population has a credit score of 800 and above?

According to the credit bureau Experian, 21% of consumers have a FICO score of 800 and higher, or in the “exceptional” range.

Why is it difficult to reach a credit score of 800?

It’s difficult to reach an 800 credit score because you’ll typically need a long credit history and to show responsible credit behavior consistently over a period of time.

What credit limit is possible with an 800 credit score?

The credit limit you’ll qualify for will ultimately depend on the credit card issuer. However, with an 800 credit score, you’ll generally get higher limits compared to someone with a lower score.

Photo credit: iStock/milan2099

Mar

2023

Guide to Credit Score Ranges

By Dan Miller | Credit, credit card, Financial Independence | Comments Off

Almost everyone in the U.S. (and many other countries) has a credit score, which is a three-digit number that some lenders use to evaluate whether or not to extend credit to you. In some cases, a lender will use your exact credit score as a determining factor. In other cases, they’ll group similar credit scores into a credit score range.

Different companies use different credit score ranges, but in most cases, your credit score will be grouped into one of five different categories: excellent, very good, good, fair, or poor. The better your credit score, the more likely you are to get approved for new loans and the lower your interest rate is likely to be if you are approved.

Recommended: How to Avoid Interest On a Credit Card

What Is a Credit Score?

A credit score is a three-digit number that attempts to encapsulate your total credit history, meaning your track record of repaying debt. There are a few different companies and models that are used, but credit scores typically range from 300 on the low end to 850 on the high end. Many lenders will use your credit score to determine whether or not they want to issue you new credit.

What Are Credit Score Ranges?

Credit score ranges (sometimes referred to as a credit rating scale) are a way to group together similar credit scores. Each company that makes credit scores has its own way of grouping credit scores, but they tend to follow a similar pattern. There are usually five different credit score ranges — excellent, very good, good, fair, or poor.

How Credit Scores Are Calculated

There are a few different companies that calculate credit scores, and each one does it in a slightly different way. Typically, the various credit bureaus like Experian, Equifax, and TransUnion collate all sorts of information about each individual, from their payment history to their credit usage to the age of their credit accounts. They lease this information to companies like the Fair Isaac Company (FICO), which then uses that information to calculate a FICO score.

Recommended: When Are Credit Card Payments Due?

How to Check Your Credit Score

There are a few ways you can check your credit score. You can purchase it from a provider, or your credit card company or other financial institution may provide your credit score for free. Or, you may use a free credit scoring website or other service to get your score.

Your credit score updates regularly as the underlying information that the credit bureaus report changes. Every time you open a new credit card, make a payment to one of your debts, apply for credit, or do anything else credit-related, your credit score may update.

What Is a Good Credit Score?

The various companies that calculate credit scores have different models and different ranges for what credit score is considered “good.” Roughly speaking, a credit score of 670 to 739 is considered “good”, with credit scores of 740 to 799 being “very good” and scores over 800 being considered “excellent.”

Factors That Impact Your Credit Score

Each company that calculates credit scores uses their own proprietary formula to calculate credit scores. Five of the common criteria used to calculate credit scores are:

• Payment history

• Credit usage

• Length of credit history

• Credit mix

• Recent credit inquiries

Credit Models Applied by Different Companies

You may wonder why you have different credit scores, and the answer is that there are different credit models applied by different companies. Depending on what company is doing the calculation, they may calculate your score slightly differently.

Generally speaking, each company that calculates credit scores looks at mostly the same types of information, so your different credit scores should be similar. It would be rare (if not impossible) to have a bad credit score from one credit model and excellent credit in another.

Lenders Credit Score Grouping

Some lenders may use your exact credit score to determine whether to extend credit, whereas others may group scores into a range. For instance, a particular lender might give one interest rate to people with excellent credit and a higher rate to those with very good or good credit. Meanwhile, they may choose not to extend credit at all to those with a fair credit score or lower.

Credit Score in Relation to Your Age

There is not a strict correlation between your age and your credit score. You might think that there is a specific starting credit score, but the truth is that when you are just starting out, you don’t have any credit score at all. As you get older, however, you have more chances to show that you are responsible (or not responsible) with your credit, and your credit score is adjusted accordingly.

Consequences of Having a Low Credit Score

Having a low credit score can have quite a negative impact on your financial life. If your credit score is too low and you don’t meet the minimum credit score for a credit card, you may not be able to get approved for loans, including a credit card. And if you are approved for a loan, you may have to pay significantly higher interest rates than someone with better credit.

Tips for Building Your Credit

There is no one magic way to build your credit — instead, your credit will build as you show that you’re responsible with the loans that you already have. For example, as you use your credit card responsibly by paying your monthly statement on time, your credit score may go up as compared to someone who pays late or misses payments.

Other ways that you can work toward building your credit from scratch include avoiding using too much of your available credit and keeping old accounts open to maintain the age of your accounts.

Monitor Your Credit Score

Another thing you can do to try and secure a solid financial future is to regularly monitor your credit report and credit score. Keeping an eye on the information in your credit report can help you know if there’s any inaccurate or incorrect information in it. If there is, correcting it can be one way to improve your credit score.

Additionally, keeping an eye on your credit score can clue you into what effect different behaviors have on your credit score. This can help you make more informed credit-related decisions in the future.

The Takeaway

Some lenders may use your exact credit score when deciding whether or not to extend credit to you or what interest rate to apply to your account. Others may look at credit score ranges and have different rates or programs for people whose scores fall in different ranges. There are five basic credit score ranges, which stretch from poor to excellent.

If you have a credit score that’s in the very good to excellent range, you might look at rewards credit cards like the SoFi credit card. With the SoFi credit card, you can earn cash-back rewards, which you can then use to invest, save, or pay down eligible SoFi debt.

FAQ

What is the average credit score?

As of 2021, the average credit score in the U.S. was 714, according to data from the credit bureau Experian. That marks an increase of four points from 2020. Other companies that provide credit scores may have a different average credit score.

What benefits does a good credit score provide?

Having a good credit score can have a variety of positive financial impacts. You may need a minimum credit score to get a credit card that you want to apply for, or you may qualify for a lower interest rate on some loans as compared to someone with a lower credit score.

Can my credit score affect my loan eligibility?

Yes, your credit score can absolutely affect your eligibility for certain loans. If you have a bad credit score, you may not get approved for a loan from some lenders. Or, if you are approved, you may have to pay a higher interest rate than someone with a better credit score.

Can a very poor credit rating prevent me from getting a cell phone contract?

Yes, it is possible that having a low credit score might prevent you from getting a cell phone contract. Some cell phone providers look at your credit score when you’re applying for a cell phone contract. If you have a low credit score, you may not be able to qualify for some contracts, or you may have to put down a security deposit beforehand.

Will low credit impede my chances of getting a rented apartment?

There are some landlords or property managers who look at your credit score when deciding whether or not you qualify for an apartment. If that’s the case for an apartment you’re looking at, then having a low credit score may have a negative impact on your chances of qualifying.

Photo credit: iStock/anyaberkut

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOCC0223001

Mar

2023

Revolving Credit vs Line of Credit: Key Differences

By Dan Miller | Credit, credit card, Financial Independence | Comments Off

Revolving credit and non-revolving lines of credit are two financial instruments that allow you to access a specific amount of money upfront.

With revolving credit, a borrower can continually access funds up to their credit limit and then, once they repay those funds, their available credit will get replenished. The line of credit remains open for use until either the borrower or lender closes it. On the other hand, a line of credit that’s non-revolving is a one-time arrangement — after the borrower spends the set credit limit and pays off the amount in full, their account will be closed.

Understanding the differences between a line of credit and revolving credit, as well as the impact of either choice, can make a big difference in your financial situation.

Understanding Revolving Credit and How It Works

Revolving credit offers the ability to use a particular sum of money over and over again. You’re usually given a credit limit, and you can spend up to that limit. As you make payments to your account, your available credit increases once again.

One example of revolving credit is a credit card. You have an initial credit limit and can continue to make charges to your card as long as your total balance stays below your credit limit. As you make payments, you can continue to use your credit card each month.

Recommended: What is a Charge Card?

Pros and Cons of Revolving Credit

The biggest upside of revolving credit is that you can use the money over and over again, as long as you continually pay down your balances. This setup can be helpful if you have short-term expenses to cover, as you’ll have a pool of money you can dip into and then quickly repay. Plus, you’ll only accrue interest charges and make payments on the amount you actually use. You can usually keep your interest at zero if you repay the full amount you borrowed every month.

There are a few cons to revolving credit though. For one, they may have higher interest rates compared to some other types of loans, such as traditional installment loans. Additionally, your revolving credit may come with annual fees. There’s also the potential to negatively impact your credit if you don’t use revolving credit responsibly, as you could drive up your credit utilization rate by using too much of your available credit limit.

Understanding a Line of Credit and How It Works

A line of credit, such as a personal line of credit, can be either revolving or non-revolving. If it’s a non-revolving line of credit, you have access to the initial sum of money, but once you spend it, you won’t be able to access it any more. Otherwise, non-revolving lines of credit function similarly to revolving credit lines.

How Is a Credit Line Determined?

The credit line that you receive through a line of credit or a credit card (such as the one offered by SoFi) is determined by the issuer. This determination is based on their evaluation of a number of different factors. Specifically, a lender may review your credit history, employment and income, and any previous credit you’ve had with them. They may also use proprietary algorithms to determine how much credit to extend.

What Credit Score Is Needed for a Credit Line?

Generally speaking, the higher your credit score, the better the chance that you’ll be approved for a credit line. You will also often get a lower interest rate the higher your credit score. This is another reason why it’s a good financial practice to work toward improving and maintaining your credit score.

Calculating Interest on a Credit Line

Most credit lines and revolving credit charge interest for any amount that remains outstanding after the statement due date. The interest rate you’re charged is determined by the card issuer and the terms of your credit line.

If you pay off your credit line in full by the statement due date, you may not owe any interest at all. But if you have an outstanding balance, you’ll likely be charged interest on the total balance that remains.

Recommended: How to Avoid Interest On a Credit Card

Pros and Cons of Line of Credit

One pro of a line of credit is that you may be able to have multiple lines of credit. These may be with different banks or through different products that are issued by the same bank. Another upside is that non-revolving lines of credit tend to have lower interest rates, and they’re often for higher amounts compared to revolving credit.

However, a downside of a non-revolving line of credit is that you’re only able to access your credit line once. Even if you make payments toward your balance, you won’t be able to access your money again, like you would with revolving credit. If for whatever reason you decide you’d like to borrow additional funds, you’ll have to go through the hassle of another application and approval process.

Recommended: When Are Credit Card Payments Due?

Similarities Between Revolving Credit and Lines of Credit

It’s important to note that a line of credit may either be revolving debt or non-revolving. So it’s possible that a particular line of credit will also be revolving credit and share all of its similarities.

Another similarity between revolving credit and a line of credit is that they both allow you to access a specific amount of money (your credit limit) upfront.

Recommended: What is the Average Credit Card Limit?

Differences Between Revolving Credit and Lines of Credit

The biggest difference between revolving credit and a non-revolving line of credit lies in how often you can access it. With revolving credit, you can access the money in your credit line as often as you need, as long as your total balance remains below your available credit limit. With a non-revolving line of credit, however, you can only access your available credit one time.

Lines of Credit vs Traditional Loans

Lines of credit differ from traditional loans in a few key areas, and it’s important to understand the differences.

With a line of credit, you have control over when and how you access your money — you don’t have to take it all at once. If your line of credit is a revolving line, you can even access your money repeatedly, as long as your total balance is below your credit limit.

Meanwhile, with a traditional installment loan, you get all of your money in one lump sum, usually at or near the date of closing. You’ll then pay a fixed amount each month until your loan is completely paid off. Mortgages and many personal loans are often considered traditional loans.

The Takeaway

Both revolving credit and non-revolving lines of credit offer access to funds, though there are key differences between revolving credit and a line of credit. With a non-revolving line of credit, you can only access the total amount of money once. In contrast, revolving credit allows you to access the money multiple times, as long as the outstanding amount is less than your total available credit amount.

A credit card is considered one form of revolving credit, since you can continue to make purchases as long as your outstanding balance is below your credit limit. If you’re in the market for a credit card, you might look at rewards credit cards like the SoFi Credit Card. With the SoFi Credit Card, you can earn cash-back rewards, which you can then use to invest, save, or pay down eligible SoFi debt.

FAQ

What’s the difference between an installment loan and a revolving line of credit?

A revolving line of credit and an installment loan are different ways to access money. With an installment loan, you get all your money upfront and then make fixed monthly payments for the term of the loan. With a revolving line of credit, you’re given a credit limit and can then choose to access however much of that limit you need, only paying interest on your outstanding balance.

Can mismanagement of my revolving credit damage my credit score?

Yes, it is possible to damage your credit if you don’t manage your revolving credit responsibly. For example, missing payments or keeping a high balance on a revolving line of credit can both have negative effects.

What is the duration of a revolving line of credit?

Your revolving line of credit typically will remain open until either you or the lender decides to close it. There are several reasons a lender may close a revolving line of credit without a borrower’s permission, including a prolonged period of inactivity, a history of late or missed payments, breached terms of the agreement, or repeated spending over the credit limit.

How does interest work for revolving credit?

Typically, borrowers will only pay interest on the amount they’ve accessed from their line of credit. Interest charges generally only apply to any balance that remains after the statement due date.

Photo credit: iStock/GCShutter