What is Credit?

Student loans, utility bills, mortgages, your rent, your tab at the local pub: These are all forms of credit. In essence, credit involves using someone else’s money to pay for things. When you purchase items with someone else's money, you enter into a financial agreement stipulating that you will repay the entire balance of the original amount owed, plus additional fees and interest.

The party that loans you money is called a creditor. This can be a family member, friend, nonprofit organization, bank, business, the government, or another party. Creditors are willing to give you money because they make money when you repay your loan -- through fees and interest. Be aware that credit is a serious matter for businesses, nonprofits and individuals, and impacts you on many, many levels.