credit

(noun)

A privilege of delayed payment extended to a buyer or borrower on the seller's or lender's belief that what is given will be repaid.

Examples of credit in the following topics:

  • The National Credit Union Administration (NCUA)

    • The National Credit Union Administration (NCUA) is the United States independent federal agency that supervises and charters federal credit unions.
    • The chartering of credit unions in all states is due to the signing of the Federal Credit Union Act by President Franklin D.
    • The federal law sought to make credit available and promote thrift through a national system of nonprofit, cooperative credit unions.
    • At first, the newly created Bureau of Federal Credit Unions was housed at the Farm Credit Administration.
    • As the insurer and regulator of federally chartered credit unions, the NCUA oversees credit union safety and soundness, much like the FDIC.

  • Obtaining Credit

    • The credit card company uses the credit report, provided by the credit bureau, to determine if the lender is likely to pay back the loan.
    • Types of credit include: bank credit, consumer credit, public credit, and investment credit.
    • The purest form is the credit default swap market, which is essentially a traded market in credit insurance.
    • The term "credit reputation" can either be used synonymous to credit history or to credit score.
    • In the U.S., when a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau.

  • Credit Unions

    • Credit unions are substitutes and competitors of banks, owned by members as a financial cooperative.
    • Credit unions usually offer better rates on deposits and lower costs for loans
    • Credit unions offer access to borrowing options not always available at traditional banks
    • Credit unions increase competition (big banks tend to be oligopolies, while credit unions are intrinsically smaller in scale, thus high in quantity)
    • Credit unions are smaller, and therefore more likely to go out of business

  • Credit Ratings

    • Credit ratings are determined by credit ratings agencies.
    • A sovereign credit rating is the credit rating of a sovereign entity like a national government.
    • A credit score is primarily based on credit report information, typically from one of the three major credit bureaus: Experian, TransUnion, and Equifax.
    • Income is not considered by the major credit bureaus when calculating a credit score.
    • The credit bureaus all have their own credit scores: Equifax's ScorePower, Experian's PLUS score, and TransUnion's credit score, and each also sells the VantageScore credit score.

  • The Discount Rate

    • The Fed offers three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate.
    • Depository institutions that are not eligible for primary credit may apply for secondary credit to meet short-term liquidity needs or to resolve severe financial difficulties.
    • The discount rate charged for primary credit (the primary credit rate) is set above the usual level of short-term market interest rates.
    • (Because primary credit is the Federal Reserve's main discount window program, the Federal Reserve, at times, uses the term "discount rate" to mean the primary credit rate. ) The discount rate on secondary credit is above the rate on primary credit.
    • Describe the Fed's primary credit, secondary credit, and seasonal credit lending programs

  • Credit Operations

    • Organizations that offer credit to their customers frequently employ a credit manager .
    • A line of credit is any credit source extended to a business or individual by a bank or other financial institution.
    • A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc.
    • Lines of credit can be secured by collateral or may be unsecured.
    • The use of credit is a necessity in business and should be managed wisely.

  • Trends in Credit After 2008

    • The availability of credit has changed in various ways in response to the financial crisis of 2008.
    • The events of 2008 led to a credit crunch, also known as a credit squeeze or credit crisis.
    • A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates.
    • In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e., credit rationing occurs).
    • Financial institutions facing losses may then reduce the availability of credit, and increase the cost of accessing credit by raising interest rates.

  • Credit Cards

    • A credit card is a payment card issued to users as a system of payment.
    • Credit cards are issued by an issuer like a bank or credit union after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.
    • As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy.
    • Merchants are charged several fees for accepting credit cards.
    • Merchants may charge users a "credit card supplement," either a fixed amount or a percentage, for payment by credit card.

  • Trade Credit or Accounts Payable

    • Trade credit is the largest use of capital for a majority of B2B sellers; Accounts Payable is money owed by a firm to its suppliers.
    • 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 eight times the amount of capital invested by shareholders.
    • There are many forms of trade credit in common use; often industry-specific.
    • Households usually track and pay on a monthly basis manually by using checks, credit cards, or online banking.

  • The Lender of Last Resort

    • Federal Reserve as the "lender of last resort" extends credit to financial institutions unable to obtain credit elsewhere.
    • In the United States, the Federal Reserve serves as the lender of last resort to those institutions that cannot obtain credit elsewhere and the collapse of which would have serious implications for the economy.
    • According to the Federal Reserve Bank of Minneapolis, "the Federal Reserve has the authority and financial resources to act as 'lender of last resort' by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy. " Through its discount and credit operations, Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in deposits or unexpected withdrawals.
    • The rate the Fed charges banks for these loans is the discount rate (officially the primary credit rate).