Table of contents

    Open credit refers to a type of credit that allows borrowers to continuously borrow up to a pre-approved credit limit. The borrower can draw on the credit line as needed, and interest is charged only on the amount borrowed. The borrower can also repay the borrowed amount and re-borrow up to the credit limit again, as long as the credit account remains open.

    Examples of open credit include credit cards, home equity lines of credit (HELOCs), and business lines of credit. In contrast, closed credit, such as a personal loan, provides a borrower with a fixed amount of money that is repaid in fixed installments over a predetermined period.

    Open credit can be beneficial for those who need access to funds on an ongoing basis, such as small business owners who may need to cover short-term expenses, or individuals who want to have a safety net for unexpected expenses. However, it is important to use open credit responsibly and to only borrow what can be repaid in a timely manner to avoid accumulating excessive debt and interest charges.