What is Credit? The Basics of Credit

The lesson explains what credit is and how it works, including the types of credit available and how to obtain it. It also emphasizes the importance of using credit responsibly and paying bills on time to maintain good credit standing and secure better interest rates and terms.


Use this video lesson on the topic of credit. Learn basic credit and related concepts of

  • Definition of credit and its function

  • Types of credit (revolving credit, installment credit)

  • How to obtain credit (application process, credit score, collateral, cosigners)

  • Importance of credit (financial objectives, responsible use, good credit standing, better interest rates, saving money)


7-12th grades


15-25 Minutes. It may be necessary to adjust the lesson plan and allocate more or less time to certain topics, depending on the needs and interests of the students.


Hand out the worksheet below (see the GET LESSON button near the bottom of the page).

Show students the video and have and have them complete the worksheet.  Review the questions on the worksheet.  A more comprehensive and detailed lesson plan can be accessed below for further instruction and study.

What is Credit? Basics of Credit

After watching the video, have students tell what the most important things they learned from the video.

Additional Resources

See our additional resources on credit:



Lesson Plan: What is Credit?



  • Students will understand what credit is and how it works.
  • Students will be able to identify the main types of credit.
  • Students will be able to explain why credit is important.



  • Video on “What is Credit”
  • Quiz on “What is Credit” (see below)
  • Whiteboard and markers
  • Handouts on credit



Introduction (10 minutes)

Start the class by asking students if they have ever heard of credit or used credit before. Discuss with the class what they know about credit and why it might be important. Explain that in this lesson, they will be learning more about credit and its different types.

Video on “What is Credit”

Show the video on “What is Credit” to the class. Pause the video at certain points to ask the class questions or to clarify certain concepts. After the video, ask the class if they have any questions or if there is anything they would like to discuss further.

Types of Credit (15 minutes)

Using the whiteboard, explain the main types of credit: revolving credit, installment credit, and open credit. Give examples of each type and ask the class if they can think of any other examples. Provide handouts on credit that further explain the different types and their characteristics.

Quiz on “What is Credit” (10 minutes)

Administer the quiz on “What is Credit” to the class. Go over the answers to the quiz and address any questions or concerns the students may have.

Importance of Credit (10 minutes)

Discuss with the class why credit is important, such as building credit history, obtaining loans or credit cards, and purchasing goods or services. Ask the class if they have any personal experiences with credit and how it has affected their financial lives. Provide tips on how to use credit responsibly and effectively.

Conclusion (5 minutes)

Summarize the main points of the lesson and emphasize the importance of understanding credit. Encourage the students to continue learning about credit and to use credit responsibly in their financial lives.


The quiz on “What is Credit” will serve as the assessment for the lesson. Observations during class discussion and participation will also be considered.


What is Credit?

Today we’re going to talk about credit. If you’ve ever used a credit card, taken out a loan, or financed something you purchased,  then you have used credit. But what exactly is credit and how does it work?

Credit is the ability to borrow money or obtain goods and services with the understanding that payment will be made later. Using credit means taking out a loan or using a line of credit for purchases you cannot or don’t want to make right away.

Credit is a tool you can use to borrow money or purchase goods and services. Here are some types of credit you might consider using:

Revolving Credit: This type of credit permits you to borrow up to a specified limit and repay the debt over time. Credit cards are an example of revolving credit.

Installment Credit: Installment credit is a type of financing used to cover specific purchases such as cars or homes. With installment credit, you borrow money for your purchase and then repay it over an agreed-upon period with fixed payments.

So how do you Get Credit?

In order to obtain credit, you typically need to apply. The application process varies depending on the type of loan you seek but generally involves providing information about your income, employment history, and credit score. Lenders use this data in deciding whether or not they will approve your application and provide you with specific terms.

If your credit history or score are poor, it can be challenging to qualify for credit. But there are ways you can improve your odds of approval. One option is applying for a secured card or loan which requires collateral such as a deposit, or an asset such as a car in order to guarantee the credit. Another alternative would be asking someone in your family or a friend with good credit to cosign your application.

So Why Is Credit Important?

Credit plays a pivotal role in reaching your financial objectives. Whether you’re looking to purchase a house, lease an automobile or launch a business venture, having access to credit makes it simpler than ever to secure the funding necessary. But it’s essential that you use it responsibly and pay your bills on time in order to maintain good credit standing and avoid damaging your score which could make future qualifying difficult. Moreover, having good credit allows for better interest rates and terms which over time helps you save money .

Remember to use credit responsibly and pay your bills on time in order to maintain a good credit score and boost your financial wellbeing.



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Categories Borrowing Money, Credit, Credit Cards, Tags , , , , ,

One thought on “What is Credit? The Basics of Credit”

  1. I am grateful for this credit lesson, which is a practical addition to my curriculum, providing clear explanations and an interactive scenario for my students to comprehend complex concepts. The emphasis on responsible credit use and maintaining a good credit standing will empower my students to make informed financial decisions. Thank you for providing such a valuable resource for educators like me.

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