WHAT IS CREDIT?. Credit

WHAT IS CREDIT?. Credit
WHAT IS CREDIT?. CreditWhat is Credit?Many people wonder what really credit is. There exist a number of definitions about the term credit and its use. According to finance where the use of this term is more prevalent credit refers to the trust which allows one party to give resources to another party where the second party does not reimburse the first party immediately thus generating a debt. The debtor pays back the debt to the creditor at a later date as per the arrangements made or reimbursement of the resources again. Often the resources provided are financial ones or goods and services a good example is consumer credit. Credit to be ascertained must involve a debtor or borrower and a creditor or lender. Ultimately credit just entails any form of deferred payment.Credit also is a contractual agreement where a borrower or debtor acquires by receivership something of value and agrees to repay the creditor or lender at some specified later date. The borrowing capacity of a person can also be used to answer the question what is credit? Commonly the borrowing capacity of a person is well-known as credit worth defining the contractual capacity of a person of which if it falls below the contracting price the person becomes bankrupt and has limited finances. In books of accounting the term credit takes even a deeper version in meaning.Accountants and accounting analysts often use the term to in referring to a journal entry in which recording an increase in assets. This term uses two dimensions first when referring to cash accounting credit is best explained as to when income is received and on accrual bases credit is when income gets earned. The credit concept can take many forms of applications and not necessarily money. Barter trade can as well encompass the credit concept when based on the direct exchange of goods and services. In the modern economies exchange of goods for goods and services for services does not take place, economies now use a unit of account money since credit itself does not act as a unit of account.Credit itself as seen from above can simply be broken down to fit this definition. In a layman’s language credit refers to borrowed money used to buy commodities when needed. This involves a credit grantor to whom the borrower agrees to pay later. Credit in its’ wider area falls to 3 major categories. Among the major sub divisions we consider these few ones.Revolving credit entails reimbursement of credit up to a given maximum limit where charges made can only meet that limit but cannot go beyond the stated limit. Most credit cards are of this nature.Installment credit This refers to a certain credit where the debtor agrees to pay the creditor the borrowed money in specified time periods or installments with a determined interest rate. Most of the mortgages and car loans are of this nature.Service credit refers to the type of credit where people contract service providers for such services. For instance electricity services, gym services and cellular phone services are good examples where service credit ids effected.We also have trade credit and consumer credit but these are technical terms used in the world of commerce to refer to approval for payment of goods purchased and consumer credit is money, services or goods provided to a person in lieu of payment. As seen in commerce and finance credit is a term to denote transactions that involve transfer of funds or money or other properties for promise of repayment at a fixed predetermined date. The two parties’ involved debtor and creditor lead to this two words debt and credit but our interest is on credit but debt is just credit when viewed from the opposite side.What is credit is a typical question that can fetch a lot of responses from many parties who often use it in day-to-day operations. As an individual consumer there are many questions you need to know about credit. The very essential thing one should understand first is what credit is. Comprehending what credit is will allow a consumer to make valid decisions on its effectiveness and importance. By reading through this article all relevant information about credit is well explained and captured. This will give you with a sure guide to other relevant aspects like the cost of credit, reasons to make you use credit and even how to keep credit well. Credit is entirely a close alternative to liquid cash in times when ready cash is unavailable. What constitute credit is simply said a simple agreement involving two parties, trust and sure promise to help in making future payments by meeting the obligations stipulated in the forming of the agreement. Thus the borrower must accept to repay back the lender of the money.