Next video:
Loading the player...

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.

Related Articles
  1. Personal Finance

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  2. Personal Finance

    Take the Right Steps to Build Excellent Credit

    There are several things you can do to protect and improve your credit score.
  3. Investing

    Investing In Credit Card Companies

    This investment requires keeping an eye on consumer indexes and the overall health of the economy.
  4. Personal Finance

    Build Your Credit Score

    Here are four good ways to build your credit score when you're starting from scratch. Do it right and you'll end up with excellent credit.
  5. Personal Finance

    Best Credit Cards For People With Poor Credit Scores

    There are still ways you can build credit with a credit card, even if you have bad credit.
  6. Personal Finance

    Should You Use Credit Cards To Fund Your Business?

    We give you 4 reasons to consider using a credit card instead of a business loan to fund your business, and how to be smart about it.
  7. Personal Finance

    Should You Increase Your Credit Card Limit?

    Should you ask for a credit limit increase? The answer is yes, and there are several good reasons why.
  8. Personal Finance

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  9. Personal Finance

    How Credit Cards Affect Your Credit Rating

    The average American household has four cards, but does that mean more is better?
  10. Personal Finance

    Why Too Many Credit Cards Can Hurt Your Credit Score

    Find out why having too many credit card accounts can adversely impact your credit score if the cards are not managed properly.
Hot Definitions
  1. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  2. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  3. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  4. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
  5. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  6. The Bernie Madoff Story

    Bernie Madoff ran a multibillion-dollar Ponzi scheme that is considered the largest financial fraud of all time.
Trading Center