Many people link credit with debt, but both can act independently of one another. There is both good debt and bad debt as well as good credit and bad credit. Knowing the difference between credit and debt can help you invest for the future and plan for retirement while maximizing your budget.
History
Credit came into being in the 1800s when consumers and merchants used it to trade and exchange goods. By the middle of the 1900s, the Diners Club Card was introduced to give customers the ability to pay for expensive meals at restaurants. Visa and MasterCard both got their start around 1966 and currently issue credit cards through participating banks.
Definitions
Credit can be defined as the trustworthiness, creditability or ability to pay for purchased goods or services. Debt is defined by a liability or obligation to pay for something that is owed.
Features
Credit can be used in different ways through credit cards, mortgages or student loans. Credit relates to the present or future of the ability to borrow. Debt is something that has happened in the past and must be preceded by credit. Good debt, such as mortgages or student loans, can raise credit scores as long as the payment history is in good standing. Bad debt, such as credit card debt, can hurt credit scores if balances remain high or the account goes delinquent.
Benefits
Credit provides leverage to purchase goods, start businesses and pay for college. A good credit reputation raises an individual's credit score in order to provide interest benefits when applying for a mortgage or other type of loan. Credit gives individuals the opportunity to invest in new businesses by purchasing property or equipment.
Warning
Credit can lead to debt if funds are not properly allocated within a budget. Debts must be paid back within a time frame or grace period and can gain a substantial amount of interest if not paid back within that period.
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