A revolver is a credit customer who has a revolving credit product such as a credit card and doesn’t pay the full balance due each month. Instead, a revolver might make the minimum payment the creditor requires. This practice means revolvers usually end up paying interest on the charges that carry over to the next month.
Find out how being a revolver works, how it affects your credit and finances, how creditors view the practice, and how it’s different from being a transactor.
Definition and Examples of a Revolver
When you’re a revolver and get your credit bill for the month, you won’t pay off the full statement balance shown. You might pay the minimum due or a higher amount that’s still less than the total balance due. In either case, part of your balance will carry over to the next month. You might do this every month if you’re a heavy revolver or just a few months a year if you’re a light revolver.
Your creditor usually charges interest on that balance so they can profit from lending you the money. You’ll keep accruing interest until those charges are paid off. Further, the balance you maintain on the card is subtracted from your available credit line. As a result, you have less credit available to use. You’ll regain access to that credit as you make payments and reduce the balance owed.
For example, say you buy a new computer costing $500 and charge it to your credit card. If you’re a revolver, you decide to just pay the minimum due—or perhaps a bit more—and let the rest of the balance carry over to the next month. You find this strategy more manageable for your budget every month, but you see interest charges accruing every month on the bill until the whole amount of principal and interest gets paid off. In the meantime, your available credit on that card is reduced by the amount still owed.
You can be a revolver and not pay interest if you have a credit card with a 0% financing offer. This type of offer usually applies when you first open the account and is for a limited time. Eventually, the introductory period ends, and any balances will begin accruing interest.
How a Revolver Works
You might be a revolver for financial reasons if you lack an emergency fund or other savings and need to spread charges over multiple months for a large expense.
For example, carrying a balance can help you handle an emergency medical expense or car repair and give you more manageable payments that fit your budget. On the other hand, you might decide to let your balance carry over if you’re taking advantage of a promotion on your credit line that allows you to make a large purchase and avoid interest for a number of months. In other cases, you might be a revolver if you simply spend more than you can afford, and this can lead to falling deeper in debt.
A 2020 study by the Federal Reserve found that revolvers tended to have lower credit scores and lower incomes than people who paid their accounts in full.
The main effect of being a revolver is that the interest charges can add up so that you pay considerably more than what you were charged originally. The longer you carry a balance, the longer the interest will accrue. While the interest compensates the creditor, it negatively affects you since you’ll have to pay more than you borrowed.
At the same time, since you have a revolving credit account, you’ll see part of your credit line freed up as you make payments. So, a $50 payment would free up $50 on your credit line. This differs from freeing up the whole credit line had you paid in full. As a result, being a revolver can lower your credit score since you’ll have higher utilization of your available credit. This can make it harder to gain access to other credit products as well as get competitive interest rates in the future.
To see the effects of being a revolver, let’s say that your car breaks down and you need to charge $1,000 on your credit card. Your budget is tight, so you can only afford the $70 minimum payment your creditor has given you. Your lender applies interest to the money you let carry over after that due date. So, you’ll see your monthly payments go toward paying down the principal and interest until you eventually pay it all off.
Carrying a balance from month to month usually eliminates the “grace period,” which is the period of time between the date you make a purchase and the date the bank begins to charge interest. That means revolvers pay interest from the day the purchase is made, while transactors, who do not carry balances month-to-month, do not.
In the meantime, the balance negatively affects the credit utilization component of your credit score, so you may see your credit score go down. If you need to apply for a car loan, for example, the lower score might result in a higher interest rate.
Revolver vs. Transactor
|Doesn’t pay in full monthly||Pays in full monthly|
|Pays interest charges||Avoids interest charges|
|Considered riskier to creditors||Considered less risky to creditors|
|Can lower your credit score||Can benefit your credit score|
The opposite type of credit customer of a revolver is called a transactor. You’re a transactor when you don’t let the balance carry over each month and make a full payment instead. This strategy can help you avoid interest charges since credit cards often come with a grace period. When you pay for the statement cycle’s purchases before the due date, the grace period lets you avoid incurring the interest that would have applied had you let some of the balance carry over.
The Consumer Financial Protection Bureau cautions that not all credit card companies offer you a grace period, so you should check with your card provider to make sure.
When you’re a transactor, creditors usually consider you less of a default risk due to the positive pattern you show by regularly paying off your debt in full. Your actions benefit your credit score as well. since you can keep the amounts owed down as well as build a positive payment history. These positive effects can add up considering that your balances owed count for 30% of your FICO score, while the payment history accounts for 35%.
- A revolver is a borrower who will let a credit balance carry over to the next month rather than pay it in full when it’s due.
- Creditors usually charge interest and apply it to the balance that a revolver carries over on the card.
- Being a revolver can make your credit score lower due to the effect on your credit utilization.
- Experiencing an emergency expense, wanting to take advantage of card promotions, and having trouble paying off what’s owed are all common reasons for being a revolver.
- If you don’t let the balance carry over from month to month, then you’re considered a “transactor” who pays the whole amount in full when it’s due.