What is credit?

Credit refers to the ability to borrow money or obtain goods and services with the agreement to pay for them at a later date. This concept is fundamental to both personal and business finance, as it allows individuals and organizations to make purchases without having the immediate cash available. When credit is extended, it typically involves terms that specify how and when the borrowed amount will be repaid, potentially including interest.

This definition aligns directly with the concept of credit as enabling transactions based on trust, wherein the lender believes the borrower will fulfill their promise to repay in the future. Understanding this element of credit is crucial for managing finances effectively, as it influences spending ability and financial planning.

The other options are not accurate representations of credit. For instance, while investment strategies are relevant to financial management, they do not define what credit is. Lending money without interest is a specific practice that may occur under certain conditions but does not encompass the broader meaning of credit, which includes interest-bearing loans. Lastly, while an individual's wealth can influence their creditworthiness, credit itself is not a measure of wealth, but rather a means of facilitating financial transactions.