What Credit Actually Is

Credit is the ability to borrow money or access goods and services now, based on a promise to pay later. Every time you use a credit card, take out a loan, or even sign a phone contract with monthly payments, you're using credit: someone is trusting you to pay them back, usually with interest added on top.

Debt is simply the amount currently owed as a result of using credit. Credit is the ability to borrow; debt is what you actually owe once you've borrowed. They're closely related, but not the same thing — you can have access to credit (like an unused credit card limit) without carrying any debt at all.

The amount currently owed as a result of using credit is called ____.

Credit matters more than it might seem. Landlords often check credit before renting an apartment. Lenders use it to decide whether to approve a mortgage or car loan, and at what interest rate. Some employers and insurers check it too. Building a track record of responsible borrowing gives you access to better terms on nearly everything that involves money later in life.

What is the difference between credit and debt?

It's possible to have access to credit, like an unused credit card limit, without currently carrying any debt.