Credit

[2] In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people.

The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit).

[7] In the past, even when not explicitly barred from them, people of color were often unable to get credit to buy a house in white neighborhoods.

When a bank issues credit (i.e. makes a loan), it writes a negative entry in to the liabilities column of its balance sheet, and an equivalent positive figure on the assets column; the asset being the loan repayment income stream (plus interest) from a credit-worthy individual.

Meanwhile, the debtor receives a positive cash balance (which is used to purchase something like a house), but also an equivalent negative liability to be repaid to the bank over the duration.

To reduce their exposure to the risk of not getting their money back (credit default), banks will tend to issue large credit sums to those deemed credit-worthy, and also to require collateral; something of equivalent value to the loan, which will be passed to the bank if the debtor fails to meet the repayment terms of the loan.

Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.

A credit default swap represents the price at which two parties exchange this risk – the protection seller takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while the protection buyer pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the paramount (that is, is made whole).

Companies frequently offer trade credit to their customers as part of terms of a purchase agreement.

Consumer credit can be defined as "money, goods or services provided to an individual in the absence of immediate payment".

Other costs, such as those for credit insurance, may be optional; the borrower chooses whether or not they are included as part of the agreement.