What is a Revolving Credit Account?

Revolving Credit Account

Revolving credit account is a form of credit such as credit cards that does not require a permanent number of payments as compared to installment credit. In Canada, the revolving credit is described as a kind of trade line that comes along with a specific credit limit. This limit enables borrowers to spend their credit on desired commodities and services.

Consumers must be able to discern the benefits and downsides of revolving as well as regular credit accounts. Likewise, they should know the advantages of obtaining revolving credit accounts and the effects of this account on one’s credit ratings.

What are the Differences between Revolving and Regular Credit Accounts?

The regular credit account like a loan account makes it mandatory for the borrower to pay the interest every month. The borrower does not have any option to postpone his payment. A revolving credit account gives the borrower the liberty to differ his payments so as not to pay monthly. The revolving credit account has a credit limit to which he can borrow.

The account however charges an interest fee for the borrower for the time he takes for making the payment. The most common type of revolving credit account is the credit card. The credit card has a credit limit and the card holder can make purchases till the limit. The card holder can pay for the purchases to his revolving credit account later. The account can be a secured or unsecured account. Most credit card accounts offer additional benefits for the card holders like rewards points and cash back offers.

What are the Benefits of Acquiring a Revolving Credit Account?

Credit cards which are the common form of revolving credit account are popular in Canada. There are lots of banks and credit card companies that offer credit cards to people. They are supported by payment networks. These payment networks connect places like shops, theatres and other places so that the customer can make purchases using his revolving credit account. The major payment networks cover lots of places in Canada and the cards could be used there. The credit card companies charge an annual fee for the usage of the card. They also charge interest charges for the purchases made.

The biggest benefit of revolving credit account is its availability when needed by consumers. It is not necessary to apply for a loan every time ran out of cash and you need to purchase some merchandise. You can also control spending from your line of credit as you want.
Revolving credit can also be used for any type of purchase. Even though a home equity line of credit is based on the equity in your home, it can be used for virtually any purchase. Most people use home equity lines of credit to finance home improvement projects, but you could also use the cash as a low-interest loan to fund your next vacation or to pay off higher-interest debt from a credit card.

What are the Effects of Revolving Credit Account on Credit Score?

The credit score gives information on the credit status of a person or company. The credit score is very important when applying for any credit like loans or mortgages. Credit bureaus which prepare the credit reports and credit score take into account credit cards or any other type of revolving credit. The credit bureaus attach much importance to the status of your credit card. If the account has large outstanding to be paid then it will affect the credit score. The number of credit cards held by the person is considered by the credit bureaus. Credit cards serve many purposes and are helpful in various situations. The accounts however should be maintained properly to avoid problems. Improper handling of credit cards will lead to severe penalties and any fraudulent activity is punishable by law.

An Ultimate Solution

Revolving credit offers one financial solution to people who have stable jobs but irregular paychecks. However, as customers, you need to understand all details about this solution.
Different companies follow different interest rates. The most common rate charged by companies in Canada is 24 per cent. The customers can choose from many companies and also look at their various additional benefits offered. The companies usually fix the credit limit based on the credit status of the customer. There are websites in the World Wide Web that help with regard to credit cards. These sites provide all information regarding the various credit cards offered in Canada. Some sites even have the tool to compare the various credit cards and their additional benefits. These tools will help when choosing a revolving credit account.

References

wikipedia.org
anybadcredit.com