Credit is the provision of resources (such as granting a loan) by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources (or material(s) of equal value) at a later date. The first party is called a creditor, also known as a lender, while the second party is called a debtor, also known as a borrower. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.



The term credit is used in commercial trade, known as "trade credit",Trade credit exists when one firm provides goods or services to a customer with an agreement to bill them later, or receive a shipment or service from a supplier under an agreement to pay them later. It can be viewed as an essential element of capitalization in an operating business because it can reduce the required capital investment to operate the business if it is managed properly. Trade credit is the largest use of capital for a majority of business to business (B2B) sellers in the United States and is a critical source of capital for a majority of all businesses. For example, Wal-Mart, the largest retailer in the world, has used trade credit as a larger source of capital than bank borrowings; trade credit for Wal-Mart is 8 times the amount of capital invested by shareholders.

Credit is denominated by a unit of account. Unlike money (by a strict definition), credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange. A longer term obligation need not be measured in the same terms as the immediate medium is, that is, the medium need not be a standard of deferred payment. Many currencies in periods of high inflation have become unacceptable as denominations of debt - creditors demand contracts that specify US dollars, or a quantity of gold or food perhaps, but continue to use the unstable local currency as the daily medium of exchange. The standard of deferred payment tends to trade at a premium in such circumstances, and some goods are not available to those who deal in the medium of exchange currency only.

Credit is also traded in the market. The purest form is the credit default swap market, which is essentially a traded market in credit insurance. A credit default swap is a credit derivative between two counter parties, whereby one makes periodic payments to the other and receives the promise of a payoff if a third party defaults. The former party receives credit protection and is said to be the "buyer" whilst the other party provides credit protection and is said to be the "seller". The third party is known as the "reference entity".