Credit is the ability to borrow money or obtain goods with a promise to pay later. It is built on trust. A lender believes the borrower will repay, so it advances funds or goods. Credit takes many forms: credit cards, personal loans, mortgages, and lines of credit. Businesses extend credit to customers by shipping goods before payment is due.

Credit has a cost. Lenders charge interest, which compensates them for the risk and the time value of money. A borrower with strong credit gets lower rates. A borrower with weak credit pays more or gets rejected. That spread reflects the lender's assessment of default risk. Credit scores, income, and history all feed into the decision.

Credit is essential to modern economies. Without it, few people could buy homes or cars. Few businesses could expand. Consumers could not smooth spending across time. But credit also carries risk. Overborrowing leads to default, bankruptcy, and financial distress. The 2008 crisis was driven in part by excessive credit. Used wisely, credit builds opportunity. Used carelessly, it becomes a trap. The difference is discipline and understanding the terms.

Common forms

• Credit cards
• Personal loans
• Mortgages
• Lines of credit
• Trade credit