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Credit has three common meanings in the financial world.

The first is a type of contractual agreement, where a buyer borrows money to make a purchase, and agrees to pay back the loan over time. This is called “buying on credit.” Credit cards are the most common example of buying on credit. Because consumers often do not have enough available cash on hand to make a purchase, accepting credit cards greatly increases sales for retail or business-to-business sellers.

In a similar usage of the word, credit can also mean the amount of money available to borrow. For example, the question “How much credit do you have?” usually means, “How much money is available for you to borrow?” If your credit card allows you to borrow up to $5000, this would be the answer.

“Credit” is also an accounting term. On a balance sheet, a credit is an entry depicting an action that either decreased assets, or increased liabilities. On an income statement, a credit will increase net income. In each of these situations, debit is the term used for the opposite type of accounting entry.

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