Credit

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Financial Terms and Glossary

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

What is the significance of credit?

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

What factors determine creditworthiness?

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

What is the difference between credit and a loan?

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.