OPEN CREDIT Meaning and
Definition
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Open credit refers to a financial arrangement between a lender and borrower in which the borrower is granted a pre-approved credit limit that can be utilized repeatedly. This type of credit allows the borrower to borrow funds up to the pre-set limit, repay the borrowed amount, and borrow again within the specified terms and conditions. Open credit can take various forms, such as a credit card or a line of credit.
A credit card is perhaps the most common example of open credit. When a person is issued a credit card, they are granted a specific credit limit by the card issuer. This credit is considered open because the individual can make purchases up to this limit and pay off the balance over time, rather than needing to apply for a new loan each time they require funds. The borrower can also choose to make minimum payments and carry a balance, but this may result in incurring interest charges.
Similarly, a line of credit provides open credit where the borrower can access funds up to the approved limit anytime they need. This form of credit is typically associated with more flexibility and can be used for various purposes, such as personal or business expenses.
Overall, open credit allows borrowers to have ongoing access to funds up to a specified limit, providing them with the convenience of borrowing and repaying without needing to reapply each time. It is important for borrowers to responsibly manage their open credit accounts to avoid incurring excessive interest charges and maintain a good credit history.
Etymology of OPEN CREDIT
The word "open credit" is a compound comprising two separate words: "open" and "credit".
The term "open" comes from the Old English word "opan", which means to "open" or "unfasten". Over time, it developed a broader sense of being accessible or available without restrictions.
The word "credit" has its origins in the Latin word "credere", meaning "to believe" or "to trust". In the context of finance, credit refers to the trust or confidence placed in a person or institution's ability to repay borrowed money.
When combined, "open credit" refers to a type of credit agreement where a borrower is granted a certain amount of credit that can be used as needed, without the need for prior approval or specific usage. The borrower has the freedom to access the available credit as required, with the obligation to repay it according to the terms agreed upon with the lender.
