Deciding whether you need a loan or credit can be fairly easy. Knowing which loan is right for your situation, and then trying to follow along with all the terminology your banker is explaining, may be a little tougher. Luckily, we’re here to help.

When thinking about some of the basics of understanding credit, first it’s important to understand what types are available. The first thing that comes to mind, for many people, is a credit card. Credit cards – and a variety of other types of credit and loans – use what’s called revolving credit. Now, what does this mean?

Revolving credit is an open-end type of credit, where the interest is paid on the outstanding balance. Your principle is automatically renewed as you pay down the balance. Aside from credit cards, revolving credit is also used on lines of credit, which are popular loan choices for homeowners wanting to renovate their home or individuals who need extra funds available for future use.

Benefits of Revolving Credit

Knowing how revolving credit works can come in handy when you’re considering any sort of credit or loan. I recommend working with your banker to determine the best loan option for your situation, although it’s helpful to know the benefits of each credit type before you go in to meet. Some of the benefits of revolving credit include:

  • Funds are available when you need them. And, after you pay down the balance you owe, the full credit amount is available to you again.
  • You only pay interest when the credit is used. You don’t automatically pay interest on the full credit amount available to you – just on the amount you spend.
  • Flexibility. Revolving credit is nice because it’s there for the times you need it, and it can be used for a variety of types of expenses – whether that’s buying something small, like groceries, or larger, like new appliances.

Ready to learn about other types of credit? Check out my post on the difference between secured and unsecured credit, browse our Credit Management articles, or contact me to learn more.