Credit usually refers to the arrangement for deferred payment for goods and/or services. Credit results in debt. Credit may also refer to borrowed money.

The term credit is often confused with loans. The two are actually different, although they are the same in that they give people access to money. The main difference of credit and loans is that credit is issued based on “promissory notes” backed by future outputs. On the other hand, loans are issued based in “promissory notes” backed by income deposited by other depositors already existing in banks.

The most common types of credits today are consumer credits. These include credit cards, store cards, personal (installment) loans, and mortgages. Consumer credits are used to finance immediate needs without having to go to bank each and every time just to get approval.

Credit cards are the most convenient kind of credit line available for personal use. A credit card gives a constant line of credit to an individual. Many cards do not charge interest–as long as the full amount owed is paid on the due date. If payment goes over the due date, credit card companies will levy a high interest rates and penalties.