Revolving credit can help or hurt your credit score, depending how you use it. Revolving credit comes in two main types: secured and unsecured.
Secured revolving credit means that there is collateral backing the line of credit. This could be a house or a bank account with money in it. If you don't pay the balance back as agreed in the contract, the creditor can take that asset.
Unsecured revolving credit means that the line of credit is not backed by anything. This type is much more risky for the lender, so the interest rates are often higher.
What Are Some Examples of Revolving Credit?
"A credit card is a classic example of revolving credit," says G. Brian Davis, a personal finance columnist and co-founder of Spark Rental, a site for real estate investors that teaches them how to make money. "The balance goes up and down as the consumer either pays it down or charges more. The monthly payment goes up and down as the balance does." Credit cards are a type of revolving credit that is not secured.
A home equity line of credit is a type of secured revolving credit. A HELOC is like a credit card, but the line of credit is backed by the value of your home.
Secured revolving credit means that there is collateral backing the line of credit. This could be a house or a bank account with money in it. If you don't pay the balance back as agreed in the contract, the creditor can take that asset.
Unsecured revolving credit means that the line of credit is not backed by anything. This type is much more risky for the lender, so the interest rates are often higher.
What Are Some Examples of Revolving Credit?
"A credit card is a classic example of revolving credit," says G. Brian Davis, a personal finance columnist and co-founder of Spark Rental, a site for real estate investors that teaches them how to make money. "The balance goes up and down as the consumer either pays it down or charges more. The monthly payment goes up and down as the balance does." Credit cards are a type of revolving credit that is not secured.
A home equity line of credit is a type of secured revolving credit. A HELOC is like a credit card, but the line of credit is backed by the value of your home.