What is meant by credit?

In the simplest form, credit refers to the sum of money that is given to the borrower to carry out an immediate purchase/investment and is repaid by the borrower at a later stage. This sum of repayment generally includes interest payments along with the repayment of the principal. In accounts, the term refers to a bookkeeping entry that either increases liabilities or decreases assets in a balance sheet. Sometimes, credit may also refer to a person’s creditworthiness. If someone “has credit” then it can mean that he/she has enough creditworthiness to be issued credit from the bank as and when required.

Financial credit refers to that credit which is issued by banks and other financial institutions. This is the more common type of credit availed by consumers. The concerned financial institution is the mediator between the borrower and the lender and is responsible for facilitating the transaction.

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