Home > Glossary > Credit

Credit

Credit refers to the trust and ability of a borrower to obtain goods, services, or funds in exchange for a promise to repay the lender at a later date. In financial terms, credit allows individuals, companies, or governments to borrow money or access services based on their creditworthiness. Credit transactions involve an agreement between a lender and a borrower, where the lender charges interest for the loaned funds or extended services.

Example

A person using a credit card to buy goods is utilizing credit, agreeing to repay the credit card company at a later date, often with interest if the balance is not paid in full.

Key points

• Credit allows individuals or entities to obtain goods, services, or funds with the promise of repayment.

• It involves a trust-based agreement between lender and borrower, often with interest charged.

• Creditworthiness determines the terms and conditions of borrowing.

Quick Answers to Curious Questions

Credit enables people and businesses to access funds, goods, or services immediately, deferring payment until a later date.

Creditworthiness is determined by factors such as credit history, income, debt levels, and repayment ability.

Credit is a broad term encompassing various forms of borrowing (such as loans and credit cards), while a loan is a specific type of credit where funds are borrowed and repaid with interest over time.