Revolving Credit Vs. Installment Loan

A traditional loan, which is paid back at set times, is not the same as revolving credit.

These installment loans are designed to help you get money for a specific need, like buying a car or paying for college. Basically, you borrow a large sum of money and pay it back in monthly payments until the debt is paid off.

Read about the best credit cards for students. Think about how a HELOC is different from a home equity loan.

Davis says that a HELOC is a revolving line of credit that a homeowner can use or pay down. A lump sum home equity loan, on the other hand, has a fixed loan amount and term for paying it back. "It's a simple loan with payments," he says.

Revolving credit is best when you want to be able to use it for different things each month without setting a specific goal up front.

Spending on credit cards to earn rewards points and cash back can be helpful, as long as the balance is paid off on time every month.

Every dollar you spend on credit can affect your FICO credit score, which is the score most lenders use. Whether that credit helps you or hurts you will depend on how you use it.
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