A creditor refers to a person or organization that has extended credit (in the form of goods, services or money) to a borrower. That borrower, also known as debtor, owes the creditor (person, organization, etc.) money.
A creditor will extend a service, product or money to a borrower with the assumption that the borrower will repay it. If a creditor extends money, the borrower will repay more than the value of money because of interest.
Most consumers deal with banks as creditors. Banks extend credit to consumers depending on credit ratings or credit scores. These help determine the borrower’s likelihood of repaying a loan. Assessing a borrower’s credit rating helps creditors ensure they won’t lose too much money from debtors defaulting on outstanding debts.
