What does credit mean in banking terms?

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In banking terms, “credit” means something like “the amount of money that a bank is willing to lend to a given individual.”  If I have X amount of credit at a bank, they are willing to lend me X dollars.

One way to think about this is to realize that “credit” comes from a Latin word meaning “I believe.”  When a bank grants you credit, they are saying that they believe in you.  Because they believe in you, they are willing to give you money right now without getting anything in return.  They believe that you will pay them back in the future.  When a bank believes this about a person or a company, the bank is willing to lend them money.  When this happens, we say that the person or the company has credit at that bank.

This term is also sometimes used to refer to the overall amounts of money that banks are willing to lend.  For example, we talk about how the availability of credit dropped dramatically during the 2007-2008 financial crisis.  This means that banks were much less willing to lend money to anyone.

So, “credit” refers to the ability of an individual to borrow money, but it can also refer to the overall amount of money that banks are willing to lend to all borrowers. 

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