In short, credit is the ability to "buy now, pay later." Debts can either be secured or unsecured. Credit is generally either revolving or installment loans. Secured debts are those backed by assets (a mortgage is secured by the house/land, an auto loan is secured by the vehicle, a secured credit card is secured by an invested account, etc.) and are generally considered to pose less risk to the lender. In the case that you don't make payments, you lose your secured asset(s) and can be sued for balance of the loan. Say you don't pay your car loan for a period of time. A lender would be legally be allowed to repossess your car. The lender would sell the car and apply that income against your loan. Odds are that you were upside down on the loan or the car was sold beneath market value. You still owe what's left of the loan and are left without a car. Unsecured debts are also called "signature loans" and are riskier to the lender. Most credit cards are unsecured. If you default on your unsecured loans, your lenders can sue you. If this happens, your wages could be garnished and a judgment would show on your credit reports. Student loan debts, even PRIVATE student loans, are generally considered to be secured debts because they pose no risk to lenders because they cannot be discharged in bankruptcy and because your wages can be garnished in case of default. Installment loans are loans that have a predetermined term and monthly payments. Common examples are home loans, auto loans, and student loans. These mostly have fixed interest rates, but home mortgages with "creative financing" options such as balloon payments/interest-only payments, adjustable rate mortgages/ARMs, etc. can have varying payments because they're tied to the prime rate, which can change over time. Revolving credit are credit cards, lines of credit, etc. You are able to add to your loan balance and generally have a credit limit. More and more furniture loans are becoming revolving credit rather than installment loans. Interest rates are generally based on risk of default as calculated via a FICO score. This score is based on Fair Isaac & Co. Business-to-business loans may look at other factors to determine risk of default.