Credit
| Part of a series on |
| Finance |
|---|
 |
|
Credit (from
The resources provided may be
Etymology
The term "credit" was first used in English in the 1520s. The term came "from Middle French crédit (15c.) "belief, trust," from Italian credito, from Latin creditum "a loan, thing entrusted to another," from past participle of credere "to trust, entrust, believe". The commercial meaning of "credit" "was the original one in English (creditor is [from] mid-15c.)" The derivative expression "credit union" was first used in 1881 in American English; the expression "credit rating" was first used in 1958.[4]
History
Credit cards became most prominent during the 1900s. Larger companies began creating chains with other companies and used a credit card as a way to make payments to any of these companies. The companies charged the cardholder a certain annual fee and chose their billing methods while each participating company was charged a percentage of total billings. This led to the creating of credit cards on behalf of banks around the world.
Discrimination
Until the Equal Credit Opportunity Act in 1974, women in America were given credit cards under stricter terms, or not at all. It could be hard for a woman to buy a house without a male co-signer. [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.
Bank-issued credit
Bank-issued credit makes up the largest proportion of credit in existence. The traditional view of banks as intermediaries between savers and borrowers is incorrect. Modern banking is about credit creation.
When a bank creates credit, it effectively owes the money to itself[further explanation needed][citation needed]. If a bank issues too much bad credit (those debtors who are unable to pay it back), the bank will become insolvent; having more liabilities than assets. That the bank never had the money to lend in the first place is immaterial - the banking license affords banks to create credit - what matters is that a bank's total assets are greater than its total liabilities and that it is holding sufficient liquid assets - such as cash - to meet its obligations to its debtors. If it fails to do this it risks bankruptcy or banking license withdrawal.
There are two main forms of private credit created by banks; unsecured (non-collateralized) credit such as consumer credit cards and small unsecured loans, and secured (collateralized) credit, typically secured against the item being purchased with the money (house, boat, car, etc.). 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. In this instance, the bank uses the sale of the collateral to reduce its liabilities. Examples of secured credit include consumer mortgages used to buy houses, boats, etc., and PCP (personal contract plan) credit agreements for automobile purchases.
Movements of
Types
There are many types of credit, including but not limited to bank credit,
Trade credit
In commercial
Consumer credit
 | This section needs additional citations for verification. (February 2017) |
Consumer credit can be defined as "money, goods or services provided to an individual in the absence of immediate payment". Common forms of consumer credit include
The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory, required by the lender as an integral part of the credit agreement. 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.
Interest and other charges are presented in a variety of different ways, but under many legislative regimes lenders are required to quote all mandatory charges in the form of an annual percentage rate (APR).[10] The goal of the APR calculation is to promote "truth in lending", to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products. The APR is derived from the pattern of advances and repayments made during the agreement. Optional charges are usually not included in the APR calculation.[11]
Interest rates on loans to consumers, whether mortgages or credit cards are most commonly determined with reference to a credit score. Calculated by private credit rating agencies or centralized credit bureaus based on factors such as prior defaults, payment history, and available credit, individuals with higher credit scores have access to lower APRs than those with lower scores.[12]
Statistics
 Switzerland
|
 Netherlands
|
 Luxembourg
|
 Denmark
|
 Sweden
|
 Japan
|
 Latvia
|
 Spain
|
 Lithuania
|
 Estonia
|
 Australia
|
 Portugal
|
 Germany
|
 United Kingdom
|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1% | 4% | 5% | 5% | 5% | 7% | 8% | 9% | 9% | 9% | 9% | 10% | 12% | 12% |
 Finland
|
 Ireland
|
 Austria
|
 France
|
 Belgium
|
 Czechia
|
 Italy
|
 Slovakia
|
 United States
|
 Slovenia
|
 Greece
|
 Poland
|
 Canada
|
 Hungary
|
| 12% | 12% | 13% | 14% | 14% | 16% | 16% | 19% | 23% | 23% | 27% | 29% | 29% | 44% |
See also
Notes
- ^ Credit (def. 2c). Merriam Webster Online. Retrieved 5 March 2015.
- ISBN 9780080497280. Retrieved 16 January 2023.
- ISBN 0-13-063085-3.
- ^ "Credit". www.etymonline.com. Online Etymology Dictionary. Retrieved 17 May 2017.
- ^ Tikkanen, Amy. "Credit card". Encyclopedia Britannica. Retrieved 2020-03-25.
- ^ "The history of credit cards (Timeline & major events)". 12 August 2021. Archived from the original on 27 April 2020. Retrieved 23 March 2020.
- ^ "Forty Years Ago, Women Had a Hard Time Getting Credit Cards".
- ^ a b "Bank of England Quarterly Bulletin 2014 Q1 - Money Creation in the Modern Economy" (PDF).
- ISBN 9788120347045.
- ISBN 9780230232792.
- ^ Finlay, S. (2009). Consumer Credit Fundamentals (2nd ed.). Palgrave Macmillan.
- ^ "What are FICO Scores and How Do They Affect US Consumer Credit?". FinEX Asia. 12 November 2017. Retrieved 8 August 2018.
- S2CID 233128669.
References
- Logemann, Jan, ed. (2012). The Development of Consumer Credit in Global Perspective: Business, Regulation, and Culture. New York: Palgrave Macmillan. ISBN 978-0-230-34105-0.
