what is credit 
the word credit has many meanings in the financial world but it most commonly refers to a contractual agreement in which a borrower receives a sum of money or something else of value and commits to repaying the lender at a later date typically with interest credit can also refer to the creditworthiness or credit history of an individual or a company as in she has good credit in the world of accounting it refers to a specific type of bookkeeping entry investopedia sydney saporitocredit in lending and borrowingcredit represents an agreement between a creditor lender and a borrower debtor the debtor promises to repay the lender often with interest or risk financial or legal penalties extending credit is a practice that goes back thousands of years to the dawn of human civilization according to the anthropologist david graeber in his book debt the first 5000 years there are many different forms of credit common examples include car loans mortgages personal loans and lines of credit essentially when the bank or other financial institution makes a loan it credits money to the borrower who must pay it back at a future date credit cards may be the most ubiquitous example of credit today allowing consumers to purchase just about anything on credit the card issuing bank serves as an intermediary between buyer and seller paying the seller in full while extending credit to the buyer who may repay the debt over time while incurring interest charges until it is fully paid off similarly if buyers receive products or services from a seller who doesn t require payment until later that is a form of credit for example when a restaurant receives a truckload of produce from a wholesaler who will bill the restaurant for it a month later the wholesaler is providing the restaurant owner with a form of credit other definitions of credit credit is also used as shorthand to describe the financial soundness of businesses or individuals someone who has good or excellent credit is considered less of a risk to lenders than someone with bad or poor credit credit scores are one way that individuals are classified in terms of risk not only by prospective lenders but also by insurance companies and in some cases landlords and employers for example the commonly used fico score ranges from 300 to 850 anyone with a score of 800 or higher is considered to have exceptional credit 740 to 799 represents very good credit 670 to 739 is good credit 580 to 669 is fair and a score of 579 or less is poor 1companies are also judged by credit rating agencies such as moody s and standard and poor s and given letter grade scores representing the agency s assessment of their financial strength those scores are closely watched by bond investors and can affect how much interest companies will have to offer in order to borrow money similarly government securities are graded based on whether the issuing government or government agency is considered to have solid credit u s treasuries for example are backed by full faith and credit of the united states in the world of accounting credit has a more specialized meaning it refers to a bookkeeping entry that records a decrease in assets or an increase in liabilities as opposed to a debit which does the opposite for example suppose that a retailer buys merchandise on credit after the purchase the company s inventory account increases by the amount of the purchase via a debit adding an asset to the company s balance sheet however its accounts payable field also increases by the amount of the purchase via a credit adding a liability 