What is Credit? How It Works and Its Importance

Credit is a financial arrangement allowing individuals or entities to borrow funds or resources with a promise of future repayment. It involves creditworthiness assessments, interest accrual, and repayment terms. Effective credit management is essential for maintaining financial health and accessing capital for growth.

Overview

In the intricate web of modern financial systems, credit stands as one of the cornerstones upon which economies thrive and individuals pursue their aspirations. From purchasing a home to starting a business, credit permeates various facets of daily life, offering opportunities for growth and prosperity. However, its complexity often renders it a subject of confusion and misunderstanding for many. In this comprehensive article by Academic Block, we will take a dive into the depths of credit, unraveling its mechanisms, significance, and implications.

The Concept of Credit

At its core, credit represents a system of trust and reciprocity. It entails the extension of funds, goods, or services by one party to another with the expectation of repayment at a later date. This mutual agreement forms the basis of lending and borrowing, facilitating transactions that transcend immediate financial capabilities. Whether it's a bank providing a loan to a business or a retailer offering installment plans to customers, credit facilitates economic activity by bridging the gap between present needs and future resources.

Types of Credit

Credit manifests in various forms, each tailored to suit different needs and circumstances.

Consumer Credit: This type of credit caters to individual consumers, enabling them to make purchases or meet expenses without upfront payment. Credit cards, personal loans, and installment plans exemplify common consumer credit instruments, empowering individuals to acquire goods and services while deferring payment to a later date.
Business Credit: Businesses rely on credit to fuel growth, manage cash flow, and invest in expansion opportunities. Lines of credit, commercial loans, and trade credit are essential tools in the arsenal of enterprises, facilitating operational continuity and strategic initiatives.
Mortgages: A cornerstone of real estate transactions, mortgages enable individuals to purchase property by borrowing funds from lenders. These long-term loans are secured by the property itself, providing borrowers with the means to acquire homes and invest in real estate.
Revolving Credit: Revolving credit facilities, such as credit cards and lines of credit, offer users a predetermined credit limit that can be continuously utilized and repaid. Unlike installment loans, which have a fixed repayment schedule, revolving credit provides flexibility in borrowing and repayment, making it a versatile financial tool.
Secured vs. Unsecured Credit: Credit arrangements can be classified as either secured or unsecured based on the presence of collateral. Secured credit requires borrowers to pledge assets, such as property or vehicles, as security against the loan, reducing the lender's risk and often resulting in lower interest rates. In contrast, unsecured credit entails no collateral requirement but typically involves higher interest rates to compensate for the increased risk to lenders.

The Credit Process

The journey of credit encompasses a series of interconnected stages, each vital in facilitating seamless transactions and fostering financial relationships.

Application and Approval: The credit process commences with an application submitted by the borrower to the lender. This application includes pertinent financial information, such as income, assets, and credit history, enabling the lender to assess the borrower's creditworthiness. Based on this evaluation, the lender determines whether to approve the credit request, considering factors such as risk, repayment capacity, and regulatory compliance.
Terms and Conditions: Upon approval, the lender outlines the terms and conditions of the credit arrangement, including the loan amount, interest rate, repayment schedule, and any associated fees or penalties. Clear and transparent disclosure of these terms is essential to ensure mutual understanding and compliance by both parties.
Disbursement of Funds: Following agreement on the terms, the lender disburses the approved funds to the borrower, either in a lump sum or in installments based on the nature of the credit facility. This marks the commencement of the credit utilization phase, where borrowers leverage the funds to fulfill their intended purpose, whether it be purchasing goods, investing in projects, or addressing financial obligations.
Repayment and Monitoring: As borrowers utilize the credit facility, they are obligated to adhere to the agreed-upon repayment schedule, ensuring timely settlement of dues in accordance with the terms stipulated by the lender. Throughout the repayment period, lenders may monitor borrowers' financial activities to assess credit risk and address any concerns or deviations from the agreed-upon terms.
Closure or Renewal: Upon completion of the repayment period, the credit facility is typically considered closed, and the borrower fulfills their obligations in full. In cases of revolving credit facilities, such as credit cards or lines of credit, borrowers may have the option to renew or extend the arrangement, subject to the lender's approval and prevailing terms and conditions.

The Importance of Credit

Credit plays a pivotal role in fostering economic growth, financial inclusion, and individual prosperity. Its significance permeates various spheres of economic activity, exerting a profound influence on businesses, consumers, and governments alike.

Stimulating Economic Activity: By facilitating access to capital, credit fuels investment, entrepreneurship, and consumption, driving economic expansion and innovation. Businesses utilize credit to finance operations, expand production capacities, and pursue strategic initiatives, thereby contributing to job creation, income generation, and wealth accumulation. Similarly, consumers leverage credit to make significant purchases, such as homes, vehicles, and education, stimulating demand and sustaining economic momentum.
Promoting Financial Inclusion: Credit serves as a catalyst for financial inclusion, providing individuals and businesses with the means to participate in the formal financial system and unlock opportunities for upward mobility. For underserved populations, such as low-income households and small enterprises, access to credit can be transformative, empowering them to overcome financial barriers, build assets, and improve their standard of living.
Enabling Asset Accumulation: Mortgages, student loans, and other credit instruments enable individuals to acquire assets, such as homes, education, and investments, that enhance long-term financial stability and wealth accumulation. Through prudent use of credit, individuals can leverage their resources to achieve strategic objectives, such as homeownership, retirement planning, and wealth preservation, thereby laying the foundation for a secure financial future.
Facilitating Risk Management: Credit serves as a tool for risk management, allowing individuals and businesses to mitigate financial uncertainties and smooth income fluctuations. Insurance products, contingent credit facilities, and other risk mitigation strategies enable borrowers to safeguard against unforeseen events, such as illness, job loss, or market volatility, ensuring continuity of operations and financial well-being.
Enhancing Financial Flexibility: The flexibility inherent in credit arrangements empowers borrowers to adapt to changing circumstances, seize opportunities, and navigate financial challenges with agility. Whether it's accessing emergency funds during a crisis, seizing investment opportunities in a volatile market, or managing cash flow fluctuations in a business cycle, credit offers a lifeline that enhances resilience and flexibility in the face of uncertainty.

The Role of Credit Institutions

Central to the functioning of credit markets are institutions that originate, intermediate, and facilitate credit transactions. These institutions span a diverse spectrum, ranging from traditional banks and credit unions to specialized lenders and fintech platforms, each playing a unique role in the credit ecosystem.

Commercial Banks: Commercial banks serve as the backbone of the credit system, mobilizing deposits from savers and channeling them into loans and investments. Through their extensive branch networks, banks provide a wide array of credit products to businesses and consumers, leveraging their expertise in risk assessment, underwriting, and relationship management to meet the diverse needs of their clientele.
Credit Unions: Credit unions, as member-owned financial cooperatives, prioritize the interests of their members and communities, offering competitive rates and personalized service. These nonprofit entities provide a range of credit services, including loans, savings accounts, and financial counseling, fostering financial empowerment and community development.
Investment Banks: Investment banks specialize in capital markets activities, including underwriting securities, facilitating mergers and acquisitions, and advising on corporate finance strategies. While not traditional lenders in the retail sense, investment banks play a critical role in facilitating access to capital for businesses through debt and equity issuance, syndicated loans, and structured finance transactions.
Specialized Lenders: Beyond traditional banks and credit unions, specialized lenders cater to niche markets and unique financing needs, ranging from mortgage lenders and auto finance companies to peer-to-peer lending platforms and alternative credit providers. These entities leverage technology, data analytics, and innovative business models to offer tailored credit solutions that complement or compete with traditional offerings.
Government Agencies: Governments play a significant role in credit markets through agencies such as the Small Business Administration (SBA) in the United States, which provides loan guarantees and support to small businesses, and housing finance agencies that facilitate access to affordable mortgages and housing finance programs. These initiatives aim to promote economic development, housing affordability, and financial inclusion through targeted interventions and policy measures.
Regulatory Oversight: Given the systemic importance of credit institutions and the potential risks associated with credit activities, regulatory oversight plays a crucial role in ensuring the stability, integrity, and fairness of credit markets. Regulatory agencies, such as the Federal Reserve, Office of the Comptroller of the Currency (OCC), and Consumer Financial Protection Bureau (CFPB), establish and enforce prudential standards, consumer protection regulations, and market conduct rules to safeguard the interests of stakeholders and maintain financial stability.

Challenges and Risks

Despite its myriad benefits, credit is not without its challenges and risks, both at the individual and systemic levels.

Overindebtedness: Excessive reliance on credit can lead to overindebtedness, wherein borrowers accumulate debt burdens beyond their repayment capacity, leading to financial distress and default. Factors such as unemployment, economic downturns, and unforeseen expenses can exacerbate debt levels, highlighting the importance of responsible borrowing and financial literacy in mitigating risks.
Credit Market Volatility: Credit markets are susceptible to volatility and disruptions arising from changes in economic conditions, market sentiment, and regulatory developments. Fluctuations in interest rates, credit spreads, and investor appetite can impact the availability and cost of credit, influencing borrowing behavior and investment decisions across sectors.
Credit Risk and Default: Lenders face inherent credit risk associated with the possibility of borrower default or nonpayment, which can erode profitability, impair capital adequacy, and undermine financial stability. Effective risk management practices, including credit assessment, monitoring, and mitigation strategies, are essential to mitigate these risks and ensure the resilience of credit portfolios.
Systemic Risks: The interconnected nature of credit markets can give rise to systemic risks that have far-reaching implications for the broader economy. Events such as financial crises, liquidity shocks, and contagion effects can trigger disruptions in credit markets, leading to credit crunches, bank failures, and economic downturns. Regulatory authorities and central banks play a critical role in monitoring systemic risks and implementing measures to safeguard financial stability.
Cybersecurity Threats: In an increasingly digitalized financial landscape, cybersecurity threats pose a significant risk to credit institutions and their customers. Cyberattacks targeting financial infrastructure, data breaches, and identity theft can compromise the integrity of credit transactions, erode trust in financial institutions, and result in financial losses for individuals and organizations. Robust cybersecurity measures and incident response protocols are imperative to mitigate these risks and safeguard sensitive financial information.
Consumer Protection Concerns: Credit markets are subject to consumer protection concerns related to transparency, fairness, and responsible lending practices. Predatory lending, deceptive marketing practices, and discriminatory practices can harm vulnerable borrowers and undermine confidence in the credit system. Regulatory frameworks, such as truth-in-lending laws, fair lending regulations, and consumer disclosure requirements, aim to protect consumers from abusive practices and promote fair and transparent credit transactions.

The Future of Credit

As technology continues to reshape the financial landscape and societal needs evolve, the future of credit is poised for transformation, marked by innovation, digitization, and inclusivity.

Fintech Disruption: The rise of financial technology (fintech) is revolutionizing the credit landscape, democratizing access to credit, and challenging traditional banking models. Fintech startups leverage data analytics, artificial intelligence, and blockchain technology to streamline credit processes, enhance risk assessment, and offer innovative credit products tailored to the needs of underserved populations. Peer-to-peer lending platforms, digital wallets, and alternative credit scoring algorithms are among the myriad innovations driving fintech disruption in credit markets.
Digital Transformation: The digitization of financial services is reshaping the way credit is accessed, delivered, and managed. Digital banking platforms, mobile payment apps, and online lending portals provide convenient and seamless access to credit, empowering consumers to transact anytime, anywhere. Blockchain technology holds the promise of revolutionizing credit markets by enabling secure, transparent, and immutable transactions, reducing counterparty risk and enhancing trust in credit transactions.
Financial Inclusion Initiatives: Efforts to promote financial inclusion are expanding access to credit for marginalized and underserved populations, bridging the gap between the unbanked and traditional financial services. Digital lending platforms, microfinance institutions, and community development financial institutions (CDFIs) are spearheading initiatives to extend credit to individuals and businesses excluded from mainstream credit markets, fostering economic empowerment and social inclusion.
Regulatory Adaptation: Regulators and policymakers are grappling with the challenges and opportunities presented by the evolving credit landscape, balancing the imperative of innovation with the need for consumer protection and financial stability. Regulatory sandboxes, innovation hubs, and open banking initiatives are facilitating collaboration between regulators, industry stakeholders, and fintech innovators to foster responsible innovation and ensure the integrity and resilience of credit markets.

Final Words

In conclusion, credit is a multifaceted phenomenon that lies at the heart of modern financial systems, shaping economic activity, fostering growth, and empowering individuals and businesses to pursue their aspirations. While credit offers myriad benefits, it also poses challenges and risks that necessitate prudent risk management, regulatory oversight, and responsible lending practices. As we navigate the complexities of credit in an ever-changing financial landscape, embracing innovation, inclusivity, and sustainability will be key to shaping a future where credit serves as a catalyst for prosperity and progress. Do let us know in the comments section about your view. It will help us in improving this articles. Thanks for Reading!

This Article will answer your questions like:

+ What do you mean by terms of credit? >

Terms of credit refer to the conditions under which credit is extended to borrowers. This includes the interest rate, repayment schedule, loan duration, and any fees associated with borrowing. Understanding these terms is crucial for borrowers to assess the affordability and feasibility of repayment. Favorable terms can enhance borrowing ability, while unfavorable terms can lead to financial strain. Clear communication of credit terms is essential for both lenders and borrowers to foster responsible borrowing and lending practices.

+ What are the types of credit? >

There are several types of credit, including installment credit, revolving credit, and open credit. Installment credit requires fixed payments over time, such as auto loans and mortgages. Revolving credit, like credit cards, allows borrowing up to a limit and repaying over time. Open credit is typically used in business contexts, requiring full payment at the end of each billing cycle. Understanding these types helps consumers choose suitable credit options based on their financial needs and repayment abilities.

+ What is the credit process? >

The credit process involves several steps, starting with the borrower applying for credit. Lenders assess the application, evaluating the borrower's credit history, income, and creditworthiness. This often includes checking credit scores and reports. If approved, the lender sets the terms of credit, including interest rates and repayment schedules. Once the borrower accepts these terms, the funds are disbursed, and the borrower is responsible for timely repayments. Proper documentation and communication are vital throughout this process to ensure clarity and mutual understanding.

+ How does credit affect economic growth? >

Credit plays a pivotal role in economic growth by facilitating investments and consumer spending. When businesses and consumers have access to credit, they can finance projects, purchase goods, and expand operations, leading to job creation and increased economic activity. However, excessive credit can result in financial instability and economic downturns. Therefore, balanced credit availability is essential for sustainable growth, allowing economies to thrive while managing risks associated with over-borrowing and defaults.

+ What are the risks associated with credit? >

Risks associated with credit include default risk, interest rate risk, and credit fraud. Default risk occurs when borrowers fail to meet repayment obligations, leading to financial losses for lenders. Interest rate risk involves fluctuations in rates that can affect borrowing costs. Credit fraud can compromise personal information, leading to unauthorized use of credit. Proper assessment and management of these risks are crucial for both lenders and borrowers to ensure a healthy credit environment and maintain financial stability.

+ What is credit utilization? >

Credit utilization refers to the percentage of available credit that a borrower is currently using. It is a key factor in determining credit scores, as lower utilization rates generally indicate responsible credit management. Ideally, keeping credit utilization below 30% can positively impact credit scores. High utilization can signal financial distress and may lead to decreased credit scores, making it essential for borrowers to monitor and manage their credit usage effectively to maintain good credit health.

+ How do credit scores impact borrowing? >

Credit scores significantly impact borrowing by influencing loan approval, interest rates, and credit limits. Higher credit scores typically result in more favorable loan terms, including lower interest rates, which can save borrowers money over time. Conversely, lower scores may lead to higher rates or loan denial, as lenders view them as higher-risk borrowers. Maintaining a good credit score through timely payments and responsible credit use is essential for accessing affordable borrowing options.

+ How do credit institutions assess creditworthiness? >

Credit institutions assess creditworthiness through a comprehensive evaluation of an individual's credit history, income, existing debts, and credit scores. They analyze credit reports to review payment histories, amounts owed, and the duration of credit accounts. Financial institutions may also consider employment stability and debt-to-income ratios to gauge the borrower's ability to repay. This thorough assessment helps lenders make informed decisions about extending credit and setting appropriate terms.

+ What is the 800 number of Transunion credit freeze? >

The 800 number for TransUnion credit freeze is 1-888-909-8872. This number allows consumers to initiate or manage a credit freeze, which restricts access to their credit reports to help protect against identity theft. Freezing your credit can prevent new accounts from being opened in your name without your consent. It's important to keep track of this information and use it proactively for personal credit security.

Risk Associated with Credit

Credit Risk: Credit risk, also known as default risk, is the risk that a borrower will fail to meet their obligations to repay a loan or fulfill contractual obligations. This risk arises from factors such as the borrower’s financial health, repayment capacity, and willingness to honor the terms of the credit agreement. Lenders assess credit risk through credit analysis, including evaluating the borrower’s credit history, income, assets, and debt-to-income ratio.

Interest Rate Risk: Interest rate risk refers to the risk of adverse movements in interest rates affecting the cost of borrowing or the value of fixed-income investments. For borrowers with variable-rate loans, such as adjustable-rate mortgages or lines of credit, rising interest rates can lead to higher borrowing costs and increased financial strain. Similarly, lenders face interest rate risk when their assets, such as loans or bonds, are tied to fixed interest rates and are subject to devaluation in a rising rate environment.

Market Risk: Market risk encompasses the broader financial market dynamics and macroeconomic factors that can impact credit conditions and asset values. Economic downturns, fluctuations in exchange rates, geopolitical events, and systemic financial crises can lead to increased credit defaults, reduced asset liquidity, and heightened volatility in credit markets. Lenders and borrowers alike are exposed to market risk, requiring proactive risk management strategies to mitigate adverse effects on credit portfolios.

Liquidity Risk: Liquidity risk arises from the inability to convert assets into cash quickly or at fair market value without significant loss. For lenders, liquidity risk can stem from mismatches between short-term liabilities, such as customer deposits or wholesale funding, and longer-term assets, such as loans or securities. Borrowers may also face liquidity risk if they encounter difficulties accessing additional credit or selling assets to meet financial obligations during periods of market stress or economic downturns.

Concentration Risk: Concentration risk refers to the overexposure to a single borrower, industry, geographic region, or asset class within a credit portfolio. Lenders with concentrated credit exposures face heightened vulnerability to adverse developments impacting the specific segment or market in which they are heavily invested. Diversification strategies, prudent underwriting standards, and ongoing portfolio monitoring are essential for mitigating concentration risk and preserving portfolio resilience.

Regulatory Risk: Regulatory risk arises from changes in laws, regulations, or government policies that impact the credit environment and the operations of lenders and borrowers. Regulatory changes can affect credit availability, underwriting standards, compliance requirements, and overall market dynamics, creating uncertainty and compliance challenges for financial institutions and borrowers alike. Staying abreast of regulatory developments and maintaining robust governance and compliance frameworks are essential for navigating regulatory risk effectively.

Operational Risk: Operational risk stems from internal processes, systems, and human errors that can lead to financial losses, reputational damage, or disruptions in credit operations. Common sources of operational risk include technology failures, data breaches, fraud, compliance lapses, and inadequate risk management practices. Strong internal controls, robust risk management frameworks, and ongoing monitoring and oversight are critical for mitigating operational risk and safeguarding the integrity and efficiency of credit operations.

Systemic Risk: Systemic risk refers to the risk of widespread disruptions or contagion effects stemming from interconnectedness and interdependencies within the financial system. Events such as financial crises, bank failures, or market collapses can trigger systemic risk, leading to disruptions in credit markets, liquidity shortages, and broader economic repercussions. Regulatory authorities and central banks play a crucial role in monitoring and mitigating systemic risk through prudential regulations, macroprudential policies, and crisis management measures.

Behavioral Risk: Behavioral risk arises from irrational or suboptimal decision-making by borrowers, lenders, investors, or market participants, leading to adverse outcomes and financial losses. Behavioral biases such as overconfidence, herding behavior, and cognitive biases can distort perceptions, impair judgment, and exacerbate credit-related risks. Awareness of behavioral biases, risk education, and decision-making frameworks grounded in empirical evidence and rational analysis can help mitigate behavioral risk and promote sound credit practices.

Environmental, Social, and Governance (ESG) Risk: ESG risk encompasses environmental, social, and governance factors that can impact creditworthiness, risk profiles, and long-term sustainability for borrowers and lenders. Environmental risks include climate change, natural disasters, and resource depletion, which can affect industries such as energy, agriculture, and real estate. Social risks encompass issues such as labor practices, human rights, and community relations, while governance risks pertain to corporate governance, ethics, and transparency. Integrating ESG considerations into credit analysis, risk assessment, and investment decision-making is increasingly important for managing ESG-related risks and promoting sustainable finance practices.

Facts on Credit

Historical Origins: The concept of credit dates back thousands of years, with evidence of credit transactions found in ancient civilizations such as Mesopotamia, Egypt, and China. Early forms of credit involved farmers borrowing seeds and repaying them after the harvest.

Types of Credit: Credit can take various forms, including loans, mortgages, credit cards, lines of credit, trade credit, and installment plans. Each type of credit has its own terms, interest rates, and repayment schedules.

Credit Reporting: Credit reporting agencies collect information about individuals’ credit behavior, such as borrowing history, repayment patterns, and outstanding debts. This information is used to generate credit reports and credit scores, which lenders use to assess creditworthiness.

Credit Scores: A credit score is a numerical representation of an individual’s creditworthiness, based on factors such as payment history, amounts owed, length of credit history, new credit accounts, and types of credit used. FICO® scores and VantageScore are two commonly used credit scoring models.

Interest Rates: Lenders typically charge interest on the money borrowed as a fee for the risk they undertake in lending funds. Interest rates can be fixed or variable and vary based on factors such as creditworthiness, prevailing market rates, loan term, and economic conditions.

Credit Limits: Credit limits specify the maximum amount of credit that a borrower can access under a credit arrangement. Credit limits are determined by the lender based on factors such as income, credit history, and repayment capacity.

Credit Utilization: Credit utilization refers to the ratio of a borrower’s outstanding credit balances to their total available credit limits. Maintaining a low credit utilization ratio, typically below 30%, is considered favorable and can positively impact credit scores.

Credit Terms: Credit terms outline the conditions under which credit is extended, including the loan amount, interest rate, repayment schedule, fees, penalties, and any collateral or guarantees required.

Creditworthiness: Creditworthiness refers to an individual’s ability and willingness to repay borrowed funds. Lenders assess creditworthiness based on factors such as income, employment status, credit history, debt-to-income ratio, and overall financial stability.

Credit Counseling: Credit counseling services provide guidance and support to individuals facing financial challenges, including debt management, budgeting, credit repair, and financial education. Nonprofit organizations and certified credit counselors offer these services to help individuals regain financial stability and manage their credit effectively.

Credit Legislation: Governments enact laws and regulations to govern credit markets, protect consumers, and ensure fair and transparent credit practices. Examples include the Truth in Lending Act (TILA), Fair Credit Reporting Act (FCRA), Equal Credit Opportunity Act (ECOA), and Consumer Financial Protection Bureau (CFPB) regulations.

Credit Freeze and Fraud Protection: Consumers have the option to place a credit freeze on their credit reports to prevent unauthorized access to their credit information. Additionally, fraud alerts can be placed to notify lenders to take extra precautions when extending credit in the consumer’s name.

Academic References on Credit

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Mester, L. J. (1997). What’s the point of credit scoring? Business Review, (January/February), 3-16.
Lando, D. (2004). Credit Risk Modeling: Theory and Applications. Princeton University Press.
Berger, A. N., & Udell, G. F. (2006). A more complete conceptual framework for SME finance. Journal of Banking & Finance, 30(11), 2945-2966.
Saunders, A., & Cornett, M. M. (2017). Financial Institutions Management: A Risk Management Approach. McGraw-Hill Education.
Zhang, L., & Zhang, X. (2020). Credit risk measurement and regulation: Evidence from the US banking industry. Journal of Banking & Finance, 116, 105684.
Merton, R. C. (1974). On the Pricing of Corporate Debt: The Risk Structure of Interest Rates. The Journal of Finance, 29(2), 449-470.
Boot, A. W., & Thakor, A. V. (2000). Can Relationship Banking Survive Competition? Journal of Finance, 55(2), 679-713.
Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance. McGraw-Hill Education.
Acharya, V. V., & Richardson, M. (2009). Causes of the Financial Crisis. Critical Review: A Journal of Politics and Society, 21(2-3), 195-210.
Koziol, C. (2012). The role of credit scoring in the UK consumer credit market. Bank of England Quarterly Bulletin, 52(2), 140-147.
Altman, E. I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. The Journal of Finance, 23(4), 589-609.
Van den Heuvel, S. (2008). The welfare cost of bank capital requirements. Journal of Monetary Economics, 55(2), 298-320.

What is Credit and How it Work?