Revolving credit is a type of debt that allows you to borrow money up to a certain limit and then repay it in full or in part, with interest, over time. The most common example of revolving credit is a credit card. Here's why a credit card is considered revolving credit:
1. **Revolving Nature**: With a credit card, you have a set credit limit which you can borrow against. As you pay off the balance, that amount becomes available to borrow again, hence the term "revolving."
2. **Flexible Payments**: Credit cards offer the flexibility to pay off the balance in full each month or make minimum payments while carrying over the remaining balance to the next month. This flexibility is a characteristic of revolving credit.
3. **Interest Charges**: If you don't pay the full balance by the due date, interest is charged on the remaining balance. This feature is common in revolving credit accounts like credit cards.
In contrast, a mortgage, auto loan, or small business loan are not considered revolving credit because they typically involve borrowing a specific amount of money, repaying it over a fixed term, and the credit is not automatically renewed once it's paid off.
