Definition of credit has been delineated by a number of economists and finance professionals. As per financial theories, credit has been defined as the procedure of providing a loan. In this process, wealth is transferred from one party to another. Nevertheless, credit can be defined in many other ways.
Following are the different definitions of credit:
Definition of Credit in terms of Finance
A credit is a legal contract where one party receives resource or wealth from another party and promises to repay him on a future date along with interest. In simple terms, a credit is an agreement of postponed payments of goods bought or loan. With the issuance of a credit, a debt is formed.
Frequently, credit refers to the terms and conditions associated with a deferred payment arrangement, for example, easy credit and cheap prices.
Credit also denotes the borrowing capability of an organization or person.
Credit also denotes the time, which is granted for detained payments, for instance a 30-day credit.
Definition of Credit in terms of Accountancy
As per accounting theories, credit refers to the subtraction of a payment given by a borrower or debtor from an outstanding amount.
The right hand side of a ledger account where the payments from debtors are recorded.
A single entry or the aggregate of all the entries on the right hand side of the ledger account.
The amount, which is left over in the account of an individual (also known as positive balance).
A credit line is also sometimes denoted as credit.
Definition of Credit in terms of Trade and Commerce
In the field of trade and commerce, credit is defined as the sanctioning of detained payments for products that have been bought.
Credit depends on the creditworthiness of the debtor or receiver of credit. Various types of credit play the role of mediums of exchange.
Definition of Creditor
The party, which offers the credit, is defined as the creditor or the lender.
Definition of Debtor
The party, which obtains the credit, is defined as the debtor or the borrower.