Definition
Credit has several distinct legal meanings, each arising in a different context:
1. Borrowing capacity. The ability of a person or business to obtain money or goods on deferred payment terms, based on the lender's or seller's confidence in that party's solvency and willingness to repay. This is credit as reputation — the standing a party enjoys in commercial relationships that allows them to obtain value before delivering equivalent value in return.
2. Deferred payment. The time extended by a seller to a buyer in which payment for goods or services may be made after delivery. This meaning treats credit as the interval itself — the gap between receipt and payment that the seller voluntarily permits.
3. Accounting entry. The correlative of a debt. A debt considered from the creditor's perspective — what is owed to a party, as distinguished from what a party owes. In bookkeeping and commercial law, a credit entry records an increase in a liability or revenue account, or a decrease in an asset account. As Burrill notes, credit is "neither money, goods nor a chose in action" — it occupies its own doctrinal space.
4. Tax law. A direct reduction of tax liability, as distinguished from a deduction (which reduces taxable income). A tax credit reduces the amount of tax owed dollar-for-dollar. The term appears throughout federal and state tax codes in this specialized sense.
5. Academic or contractual credit. A unit of recognized achievement or entitlement, as in academic credit hours or contract terms allowing a buyer credit toward future purchases.
Common Language
Modern common usage (Wiktionary): Reliance on the truth of something said or done; faith; trust. Also: recognition or acknowledgment of a contribution. Also: a privilege of delayed payment extended to a buyer or borrower.
Historical common usage (Webster's 1913): Reliance on the truth of something said or done; belief; faith; trust; confidence. Also: reputation derived from the confidence of others; esteem; honor; good name.
The common English meaning of credit — acknowledgment, recognition, or honor given to someone — carries almost no legal weight in commercial or tax contexts. Legal research that encounters the word credit must first determine which of the five legal meanings is operative. A document that praises a witness's "credit" is addressing testimonial credibility, not commercial capacity. A tax form line labeled "credit" is describing a dollar-for-dollar offset against liability, not reputation. The ordinary meaning of credit as acknowledgment or attribution rarely governs legal analysis.
Recognized Forms
/SUBTYPES
Letter of credit: A financial instrument by which a bank or other issuer undertakes to pay a specified amount to a third party (the beneficiary) upon presentation of conforming documents. Governed by its own substantial body of commercial law.
Tax credit: A statutory offset against computed tax liability. Subdivided further into refundable credits (which may result in a payment to the taxpayer if the credit exceeds liability) and nonrefundable credits (which can only reduce liability to zero).
Credit bid: In foreclosure or bankruptcy sale proceedings, a bid by a secured creditor that uses the outstanding debt as currency in lieu of cash.
Line of credit: A credit arrangement establishing a maximum borrowing amount that the borrower may draw against as needed, rather than receiving a single lump-sum loan.
Consumer credit: Extensions of credit to natural persons for personal, family, or household purposes, subject to distinct regulatory regimes including truth-in-lending requirements.
Why It Matters in Research
The word credit appears across so many unrelated bodies of law — commercial, tax, banking, evidence, consumer protection, academic — that it is one of the more dangerous terms to search without a qualifier. A full-text corpus search for "credit" will return documents spanning letters of credit, tax credits, witness credibility, accounting entries, and consumer lending simultaneously.
For historical sources, watch for "credit" used in the witness-examination context to mean credibility or testimonial trustworthiness. Older treatises and court opinions frequently discuss "the credit of a witness" where modern usage would say "the credibility of a witness." The Anderson's and Rapalje entries in the source dictionaries reflect this older evidential usage, which has largely separated into the distinct term credibility in modern legal writing.
In tax research, the distinction between a credit and a deduction is foundational. Sources that predate the modern income tax era will not use credit in its tax law sense at all — this meaning is a twentieth-century development. Researchers working in pre-income-tax materials should not expect to find "credit" used as a tax offset.
In commercial law, the shift from personal credit (reputation-based borrowing capacity) to institutional credit instruments (letters of credit, lines of credit, securitized lending) is a major historical arc. Early dictionary definitions — emphasizing reputation and community standing — reflect an era of relationship-based lending that modern structured finance has largely displaced at the institutional level.
Jurisdictionally, letters of credit are substantially governed by Article 5 of the Uniform Commercial Code in U.S. jurisdictions, but the UCC is not uniform in every detail across states. International letters of credit are frequently governed by the Uniform Customs and Practice for Documentary Credits (UCP), published by the International Chamber of Commerce — a private body, not a legislature.
Historical Dictionary Support
The historical dictionaries converge on the core commercial meanings: borrowing capacity based on trust and reputation, and deferred payment time extended by a seller. Burrill's framing is the most analytically precise, noting that credit is "neither money, goods nor a chose in action" — a doctrinal boundary-marking statement that distinguishes credit from other forms of property and obligation recognized by the common law.
Bouvier introduces a dimension the other sources understate: social credit — "that influence connected with certain social positions." This reflects an earlier era in which creditworthiness was intertwined with social standing in ways that modern commercial law formally disclaims, though social and reputational factors have never fully disappeared from lending practice.
Black's both editions align closely with Bouvier on the three primary commercial senses. The second edition references People v. Wasservogle and Dry Dock Bank v. Trust Co. for the borrowing-capacity and commercial-debt senses respectively.
None of the historical dictionaries anticipates the tax credit sense. This absence is unsurprising — the federal income tax as a permanent institution dates to 1913, and the proliferation of statutory tax credits as a policy tool is largely post-World War II. Researchers using any of these dictionaries to interpret credit in a modern tax context should not rely on historical dictionary definitions.
Jurisdictional Note
Tax credits vary significantly between federal and state law, and a credit available at the federal level may have no state analog, or may be structured differently. Consumer credit is governed by a layered system of federal statutes and state law, and the applicable rules depend heavily on the type of transaction and the parties involved. Letters of credit in domestic transactions are primarily governed by UCC Article 5, but individual states have enacted the UCC with varying modifications.
Encyclopedia Cross-Reference
Adoption Credit (The Law Mind Tax Encyclopedia)
Child Tax Credit (The Law Mind Tax Encyclopedia)
Retirement Savings Credit / Savers Credit (The Law Mind Tax Encyclopedia)