Glossary

Credit

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Credit is money lent as debt. Creditors rely on ratings by credit agencies to determine the creditworthiness of a borrower and the risk of default. Those factors inform the lender’s decision to offer a line of credit or refrain from issuing debt to a borrower.

Credit cards are a familiar source of credit for everyday consumers. A bank issues a credit card that partners with credit card brands like Visa, Mastercard, and American Express. The card represents a capped line of credit available to each cardholder. A consumer’s credit limit depends on his or her creditworthiness and the risk anticipated by the issuing bank and card brands.

A cardholder who uses credit must repay that debt, or interest will accrue on the remaining credit balance. When a consumer makes a credit card purchase, the merchant’s bank account verifies that the customer’s bank account has the funds required to make that purchase. Then, the issuing bank credits the merchant’s bank for the purchase, and the customer gets a bill from the card brand.