Selecting the Best Revolving Credit Line for You

A revolving credit line is debt issued from a maximum spendable amount without set monthly payments. When a consumer uses the credit line, the purchase is deducted from the maximum spendable amount to reflect the remaining credit. The purchase then becomes the principal amount owed. The consumer can choose to carry this principal, i.e. "revolve" the balance, to the next month. Or, the purchaser can choose to pay the balance each month. Every time the balance is paid off, the maximum credit available returns to its original amount. The most common form of revolving credit line is the credit card. Home equity lines of credit and overdraft protection on bank accounts are also forms of revolving credit. To get the most out of your revolving credit line, select it based on a detailed review of the primary factors.

Interest Rates

Interest rates are the biggest factor in determining the total cost of your credit line. The lower your interest rates, the less you will pay over time in fees. On revolving credit lines, interest rates are not always straightforward. You should check to see how the interest compounds on existing balances. Be aggressive in seeking the best possible rates, which will not always be through your bank.

Fees and Penalties

Ask about fees and penalties that may be applied to your card. For example, are there fees for online purchases? What about purchases made overseas? If you close your home equity line of credit, will you owe a fee? If you default on the credit, will your home be seized? Asking these types of questions will help you to protect yourself against future financial losses. Revolving credit line contracts are typically very long with detailed fine print. You may want to ask a lawyer to review the contract before accepting the terms. In any case, be certain to read it thoroughly and ask questions.

Maximum Spending Allowance

Your maximum spending allowance determines how much you can owe on the line at any given time. This comes into play when you are making large purchases, carrying a balance due to a heavy period of spending, and when the major agencies check your credit. The total amount of credit you have open at any time is one factor in your credit score. The total percentage of the credit that you owe is also a factor. Carrying a higher maximum and a lower balance will lead to a healthier credit score. If you have made payments successfully, consider requesting an increase on your revolving credit line.

Rewards, Points and Incentives

Credit cards particularly are big incentives for spending. You may get points towards future purchases, rewards such as airline tickets or gift certificates and other incentives. If you travel a lot, consider using a card branded for a particular airline. If you care about a certain charity, you may be able to apply points to that charity on each purchase through a co-branded card. These types of rewards can ensure you get something additional every time you purchase.

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