There are many definitions of credit. When it comes to managing your money, however, credit is the ability to acquire money, goods or services from others without immediate payment.
If you purchase something with cash, you are making an immediate exchange of payment. If you buy the same item with credit, you are agreeing to repay the purchase price and whatever interest is incurred. You will later have to repay either the business you are purchasing from or an independent lender. Once you have made that agreement to repay, however, they amount you are purchasing the item for is no longer credit. It becomes, instead, a debt.
The amount of credit you have is generally reduced by the amount of debt you have. For example, if you have a five hundred dollar credit limit through a credit card, and you use that card to purchase something for two hundred dollars, you now have three hundred dollars of credit and two hundred dollars of debt. That amount will also be subject to change due to any purchase fees or interest accrued.
Credit is a very powerful tool. it gives you greater flexibility to make future purchases or respond to changing life situations. Acquiring credit is an important money management strategy. Once you use your credit, however, you are limiting your future ability to respond to financial situations. Credit is an important tool to have, but a risky tool to use.