What is credit?

Having credit means doing two things:
Borrowing money	Paying money back by a certain date

When you borrow money, you owe money. When you owe money, you have a debt. Stated another way, when you owe money, you are a debtor.

If you borrow money from a friend or a family member, you usually have to pay the money, or debt, back. When you borrow money from a financial institution, you always have to pay the debt back, and by a certain date.

When you pay money back on time, you have good credit. When you have good credit, financial institutions consider you credit worthy. And when you are credit worthy, you have a history of paying back money on time.

In short, your credit reflects how you manage money.

Let’s say you borrow money from your brother, and you pay him back when he asks you to. If you need to borrow money again, your brother will likely give it to you because he knows you will probably pay the money back by a set date. In other words, you have good credit with your brother, who is acting as your lender, and loaning you, a debtor, his money for a period of time. Because you have good credit, your brother will loan you money.

Your brother may have loaned you some money to get you through a rough spot. If you need to make large purchases, though, it makes sense to borrow money from a financial institution, such as a bank or credit union. These institutions will loan you money if you have good credit, or a history of paying money back to companies on time.