One important way that some types of loans or financial products differ is in whether they’re revolving or non-revolving 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, however, allows you to access a specific amount of money upfront and 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.
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.
Key Points
• Revolving credit offers repeated access to funds up to a set limit, with interest charged only on the amount used.
• Non-revolving credit provides a one-time lump sum, with interest on the full amount and no additional access without reapplying.
• Revolving credit typically has higher interest rates compared to non-revolving credit.
• Revolving credit affects credit scores through utilization ratio and payment history.
• Non-revolving credit impacts credit scores mainly through payment history.
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, how a credit card works 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. When you have a high balance vs. your credit limit, that creates a high credit utilization ratio, which can negatively impact your credit score.
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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.
Whichever of the different types of credit cards you choose, it typically represents 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: Understanding Purchase Interest Charges on Credit Cards
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.
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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 (meaning a higher sum) 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). According to Bankrate, in January 2025, the average fixed-rate interest on a 30-year conventional mortgage was 7.11% while the rate for a credit card was 20.15%.
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, pay interest on the full amount borrowed, and you’re not able to access any additional funds without reapplying with your lender. With a revolving credit account (such as credit cards), 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.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What is the major difference between revolving and non-revolving credit?
One of the biggest differences 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
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