Credit

Credit or “credere” in Latin means, “to trust”. It also means the borrowing of funds, money, goods and

or services from one party to another, with a promise of the latter party to pay the borrowed funds, money, goods and or services at a specified future time. If credit were meant to trust, thus credit started when people started to trust one another. Credit just doesn’t pop-out of the blue; it started with necessity.

Credit started when people began to think on ways to expand their resources with bigger things on

their heads. Credit is a long process of evolution. People are more engage in using credit as a

medium of exchange instead of cash.

The first party to a credit is called the borrower, also known as the debtor. The borrower or debtor is the

one who needs the funds, money, goods and services. The borrower also is the one to which the money comes to or being lent to, thus, has the obligation to repay at a future agreed date. A borrower may be an individual, or non-individual who needs funds, goods, and or services for different purposes.

Examples of Individual borrowers are employees, students, housewives, and almost all people in

all walks of life. Some examples of non-individual borrowers that may also need credit are the following: small and medium enterprises, cooperatives, corporations and other groups.

The power when speaking of the borrower is the ability to obtain money, goods and or services without actual payment. So it can be said that the borrower has the power to allocate his funds to other more productive areas or business.

The second party to a credit is called the lender or the creditor; the one to which the funds, money, goods and or services comes from,

or being borrowed from. More often than not, the creditor is the one who has the authority to decide on the payment method, payment date, payment conditions, though the borrower needs to agree upon the contract proposed by the creditor. The most common example of

creditors are banks, credit unions, company cooperatives, pawnshops, individual money lenders, government institutions, exporters,

importers, retail stores, supermarkets, wholesale stores, department stores and so forth.

Credit is everywhere, in almost all places of the world. It is like a two-way street, when there’s a debtor; there is always the creditor.

It is most essential in business world. It is the bread-and-butter for some creditors because most of them earn interest for the borrowed

funds, goods and services. It is like fuel that makes a business go, credit makes funds available to purchase supplies and other

important things needed for the business, without actually paying for it. Some business would have not been started if it weren’t for credit.

For example, a baker, if a baker has no funds or cash to start a business, then there will be no bakery. If the baker has someone to

borrow funds from, then the baker can use the money to establish the business, and pay the money when there is income.

Whatever the purposes of the borrowers, both parties in credit are benefited.