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What is Credit?

Credit is borrowed money that you can use to purchase things you need when you need them and then repay the funds back at an agreed time. Services can also be paid for on credit such as cable and telephone services. For example, if you subscribe to telephone or cable services for a month and then pay for them at the end of that period, you are receiving services on credit. Common types of credit include mortgages or home loans as well as personal loans or lines of credit and credit card purchases.

Therefore you are considered a borrower while the entity that lend you the money is called the lender or the creditor. For the lender to make money, they have to charge you interest for the money you borrowed.

Repayment is an important part of the credit process. A good credit history means honoring credit repayment agreements. If not, your credit rating may be damaged and you may not be able to get credit again when you need it. Some loans allow you to repay faster than the agreement without penalty, while others do not.

If you are slow in repayment you may also have to pay a high interest rate or you may be charge with late penalties by the lender.

What is a Bank Credit?
What is a Credit Line?