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Simple English definitions for legal terms
credit
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A quick definition of credit:
Credit: When someone lets you borrow money or buy something now and pay for it later, that's called credit. It's like getting a loan, but instead of going to a bank, you're borrowing from a person or a company. There are two types of credit: business credit, which is for companies, and consumer credit, which is for people like you and me. When you use credit, you have to pay it back with interest, which is like a fee for borrowing the money.
A more thorough explanation:
Credit is when a creditor gives an applicant the right to delay paying back a debt, borrow money and delay paying it back, or buy something and delay paying for it.
- Business credit: This is when a business borrows money for business purposes, like buying inventory or equipment.
- Consumer credit: This is when a person borrows money for personal reasons, like buying a car or paying for college.
In accounting, credit is a type of debt. It is recorded on the right-hand side of the balance sheet and can either decrease the value of an asset or increase the amount of capital, liability, or revenue.
For example, if a person uses a credit card to buy a $100 item, they have borrowed $100 and will need to pay it back later with interest. This is an example of consumer credit. In accounting, if a company borrows money from a bank, the amount borrowed would be recorded as a liability on the balance sheet, which is an example of credit.