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What Is A Revolving Account On A Credit Report?

What Is A Revolving Account On A Credit Report?

If you carry a credit card and use it to make purchases then you are benefiting from a revolving line of credit. Revolving lines of credit vary drastically from the other most common type of loan which is installment based. Common installment loans are mortgages and auto loans which have a fixed initial loan amount up front which is paid in full with additional interest at the end of the loan term. Revolving lines of credit accrue interest on outstanding balances month-to-month in perpetuity. There is no fixed interest rate or fixed loan payoff date on revolving accounts.

It's easy to identify a revolving line of credit account on your credit report by the name used and the amount owed. There is also an additional indicator for all revolving accounts which is the use of an "R" located on the far right of the credit report. If you do not see the characteristic letter "R" that it may actually be spelled out and read "Revolving. A number will also be located next to the "R" or the name from 1 to 9 which specifies the status of payments made on the account. One is the loneliest number, scratch that...I mean lowest number which signifies early or on time payments. Nine is the highest number which isl most likely applied to charged off accounts or legal judgments. For example, an R-3 would indicate a late payment being greater than 60 days but less than 90 days past due.

Information related to revolving lines of credit on credit reports include the creditors name, credit limit, total amount owed and a grid laid out by month and year showing payment history including late payments. There will also be date last activity, date opened, type of loan and type of account witch will show a revolving designation. Installment loans on the other hand will either show an "I" or "Installment" and will have loan terms with either 36, 48, 60 or 72 months which is most common for this type of loan. Mortgage loans will normally show terms of either 180 or 360 months. It is important to understand the difference because it allows you to easily recognize which type of loan you are looking at on a credit report and immediately jump to the relevant information.

Revolving lines of credit can continue to be used by a consumer for a period of decades assuming everything stays the same and payments are made on time and for the correct amount. Sometimes however, a credit card will become delinquent and its status will change to closed by cardholder, closed by lender or charge-off. Revolving line of credit accounts offer more convenience because the amount available can be used any time for any reason where installment loans are limited to a fixed duration and for a specific purpose. Once you pay off your mortgage you don't get to take the amount you were initially approved for and buy a second home. You'll have to apply and qualify again if you plan to take out another mortgage or auto loan or other type of installment loan. Even if credit cards fall delinquent, they can be paid in full and brought up to date and continue to be used.

Image by: Steve Bernacki