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What is a Revolving Account?

By Pharaba Hacker-Witt
Updated May 17, 2024
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A revolving account is one in which a debt or credit does not close or clear at the end of every cycle but keeps revolving into the next cycle. Revolving accounts are seen with most credit cards. The accounts keep revolving as long as companies keep extending credit, typically charging interest as they go, and the borrower keeps making payments on the account without paying it off in full.

The other reason these accounts are considered revolving is that the borrower can continually borrow or pay back more at any given time within the constraints of the limits put on them. A mortgage is not a revolving account because the amount borrowed is a stated amount, given out at one time. A mortgage amount is typically paid off over time, but the amount does not fluctuate and the borrower continues to pay the amount down.

Bank accounts also can be considered revolving. This sorts the types of revolving accounts into revolving credit accounts and revolving bank accounts. Usually when referencing a revolving account, a credit account is assumed. But Checking and savings accounts also allow you to put in and take out money at will, so these accounts also revolves from month to month. The main difference between the two is that the money in a revolving bank account is all yours; it does not include a borrowed amount from a bank or other entity.

American Express has long been the most notable credit card company for offering endless credit to borrowers on a non-revolving basis. When American Express began, the company did not offer any type of revolving account. The company set out to lend money for things you needed immediately or for products for which you had the funds but did not wish to carry a checkbook or cash to purchase.

Before the far-reaching scope of credit cards as revolving accounts, many people had revolving accounts at particular stores where they often shopped. A customer could have such an account at a hardware store or grocery store, sometimes even a bar or restaurant. Often referred to as a “tab” before universal credit, this was the only way a person could spend money they did not currently have. This allowed shopkeepers to increase business but also made them assume the risk if a customer did not make good on the money they owed.

Revolving accounts have been the source of much strife when it comes to debt. People can overuse and overextend the limits of their income, making them beholden to creditors. This also forces them to pay more for goods and services over time, not to the manufacturer or reseller but directly to banks. While some see a revolving credit account as an economic boon because it allows increased spending, others argue that revolving credit accounts have been more detrimental to the economy than helpful.

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