Credit

A term used in accounting to describe either an entry on the righthand side of an account or the process of making such an entry. A credit records the increases in liabilities, owners' EQUITY, and revenues as well as the decreases in assets and expenses.

A sum in taxation that is subtracted from the computed tax, as opposed to a deduction that is ordinarily subtracted from gross income to determine adjusted gross income or taxable income. A claim for a particular sum of money.

The ability of an individual or a company to borrow money or procure goods on time, as a result of a positive opinion by the particular lender concerning such borrower's solvency and reliability. The right granted by a creditor to a debtor to delay satisfaction of a debt, or to incur a debt and defer the payment thereof.

CONSUMER CREDIT consists of short-term loans made to people so that they can purchase consumer goods and services for personal or household purposes.

The term credit has various applications to transactions that involve borrowing. Credit can be used in reference to the ability to postpone payment, as in the case of an individual who has credit with a local store that allows purchase of items on a weekly basis and settlement of account due once a month. An individual might also be extended a credit line, the maximum amount of money that a lender will put at a borrower's disposal. In such case, an individual enters into an agreement for the taking out of a series of loans. Since there is a fixed limitation on the amount to be borrowed, payments must be made to reduce the debt incurred when the maximum is reached.

A letter of credit, sometimes called a creditor's bill, is a written instrument from a bank or merchant in one location requesting that anyone, or some specifically named individual, advance money or items on credit to the individual holding, or named in, the letter. Repayment of the debt is guaranteed by the bank or merchant issuing the letter. Letters of credit are popular in international commercial transactions because they enable parties to transact business without the need to exchange large amounts of cash. This type of instrument was also popular prior to the common usage of credit cards and travelers' checks.

Personal credit is granted based upon an individual's character, reputation, and business standing regarding his or her financial reliability.

A sample plain-language cardholder agreement for a bank credit card.