Credit Information Hub
This credit information hub contains a list of the most common business and financial terms that contain the word ‘credit’ and their meanings, plus hyperlinks to more comprehensive explanations.
Credit refers to money, a product, or service that is lent (as a loan). It originates from ‘credere’, which in Latin means ‘to believe’. The lender believes (trusts) in the borrower’s ability and willingness to repay the loan.
Credit – money lent to a business or an individual. It may also refer to a positive balance in a bank account. As a verb (to credit) it means to add money into a bank account. The loan might not necessarily be money, but in the form of goods and services.
Credit Bureau – companies that gather individuals’ and companies’ credit and payment histories, and sell this data to lenders, who then decide whether or not to offer credit to customers. Also called a credit agency.
Credit Card – a plastic card one can use to buy goods and services on credit. It can also be used to get cash and pay back later. With credit cards the issuer pays for the purchase, and the cardholder repays at a later date.
Credit Card Loan – whenever a credit card holder makes a purchase, the issuer is providing a credit card loan, which if repaid before the end of the ‘grace period’, will incur no interest charges (as long as the holder doesn’t carry a balance).
Credit Control – a company’s department that chases late payments and decides whom to offer trade credit to. Credit control also refers to those activities.
Credit Crunch – when lenders and investors become more reluctant to lend money because of deteriorating economic or political conditions. Available credit contracts significantly. Also known as a credit crisis or credit squeeze.
Credit Default Swap – a kind of insurance protection against a default by a third-party borrower. In a credit default swap, the issuer pledges to pay the buyer if the third party defaults. Also called a credit derivative contract.
Credit Easing – a strategy used by central banks to boost credit by purchasing private sector assets. The aim is to get financial institutions to lend more, thus kick-starting economic activity.
Credit Freeze – when you stop credit bureaus from selling personal information about you, you implement a credit freeze. The term may also refer to a government forcing banks to stop lending money completely. Also called a security freeze, credit lock down, or credit report lock down.
Credit History – contains a record on how promptly a person paid back loans over time. Forms part of a credit report.
Creditor – a person, company, government or entity that is owed money. When a borrower takes out a bank loan, the creditor is the bank, and the borrower is the debtor.
Credit Score – a number that reflects how well or badly you are forecast to pay back a debt, i.e. it grades your creditworthiness. Lenders look at people’s credit scores to decide whether to approve a loan, and what interest rate to charge.
Credit Union – a mutual, not-for-profit financial organization that belongs to people who have an account (depositors). Most account holders have a common bond, such as belonging to the same trade union, company, church, or other organization.
Creditworthiness – your creditworthiness is your likelihood to pay back a loan responsibly. The term may be applied to an individual, firm, organization or country. Lenders check applicants’ creditworthiness before determining whether to offer credit.
Export Credit Agency (ECA) – a government or quasi-government agency that helps local companies export, especially to emerging economies and low-income nations. They provide guarantees, credit insurance and loans.
Letter of Credit – a document in which a bank guarantees payment to the seller (exporter), as long as it adheres to a list of conditions. If the buyer (importer) fails to pay, the bank has to. Also called documentary credit.
Revolving Credit – a credit line that renews every time the balance is paid off, in contrast to installment credit. Also called an evergreen loan.
Standby Credit – credit made available to emerging economies and lower-income countries that face temporary balance of payment problems, or experience unexpected disasters, like earthquakes or floods. The IMF Standby Credit Facility is one example.
Trade Credit – an arrangement whereby the buyer can pay for goods and services at a later date. Payment is typically deferred by thirty, sixty or ninety days.