Open-End Credit

Full definition

Open-end credit gives borrowers ongoing access to funds up to a maximum credit limit. The borrower controls how much to borrow (up to the limit) and when to repay. Repayments restore available credit, which can be re-used. Examples of open-end credit: Credit cards (the most common form). Personal lines of credit (PLOCs). Home equity lines of credit (HELOCs). Business lines of credit. Overdraft protection lines. Key characteristics: Revolving availability: borrow, repay, borrow again - the cycle can repeat indefinitely within the limit. Minimum payment structure: most open-end products have a minimum required payment (often 1%-3% of the balance or a flat minimum). Paying only the minimum allows interest to accumulate on the remaining balance. Variable credit limit: lenders can increase or decrease the credit limit based on payment history and creditworthiness review. Variable interest rates: most open-end credit (except fixed-rate PLOCs) carries a variable APR tied to the prime rate. Contrast with closed-end credit (personal loans): A personal loan is closed-end credit - you receive a fixed lump sum, repay it over a fixed term with fixed payments, and cannot re-borrow when the balance declines. Once paid off, the loan is closed. To access more funds, you must apply for a new loan. Impact on credit score: Open-end credit contributes to credit utilization ratio (amounts owed relative to credit limits), which is 30% of the FICO score. High utilization on open-end accounts hurts the score significantly. Closed-end installment loans do not have a utilization ratio - their balance is simply a debt obligation, not a ratio against a limit.

• Revolving credit
• Personal line of credit
• Credit Limit
• Credit utilisation