Business, Legal & Accounting Glossary

Definition: Creditor


Quick Summary of Creditor

A person or organisation to whom money is owed by the entity.

What is the dictionary definition of Creditor?

Dictionary Definition

  1. finance A person to whom a debt is owed.
  2. One who gives credence to something; a believer.

A creditor is a party (e.g. person, organization, company, or government) that claims that a second party owes the first party some property or service. The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property or service. The first party is frequently called a lender, and the second party is frequently called a debtor or borrower.

In other words, your creditors are people to whom you owe money.

The term creditor is frequently used in the financial world, especially in reference to short term loans, long term bonds, and mortgages.

The term creditor derives from the notion of credit. In modern America, credit refers to a rating which indicates the ability of a borrower and likelihood to pay back his loan. In earlier times, credit also referred to reputation or trustworthiness.

Full Definition of Creditor

A creditor is a person or entity that is owed money by another person or entity (i.e. the debtor). For example, a bank or a company that gives out mortgage loans is a creditor. In this case, the creditor is loaning money in exchange for collecting interest payments on the principal. An investor that holds a bond is also considered a creditor. A creditor often looks at the credit rating or credit score of the debtor to determine how the terms of a contract or a loan should be structured (i.e. secured debt, collateral requirements provision, default provision, etc.) and priced (i.e. counterparty risk premium). By evaluating its counterparty risk and implementing mitigation measures, a creditor tries to maximize its return on investment while minimizing risk. In the event of default by the debtor, the creditor can pursue legal actions with the appropriate court to collect on the debt owed. When the debtor files bankruptcy, the creditor will receive a bankruptcy notification. At that point, if the creditor determines that the debtor could, in fact, repay, such creditor has the option to pursue a non-dischargeability action with the bankruptcy court. However, if the debtor’s inability to repay cannot be challenged, then the amount the creditor will recover, as well as when the creditor will recover it, will be based on the outcome of the bankruptcy proceeding.

Types Of Creditor

The term creditor is derived from the notion of credit. Creditors can be discriminated into three types. The first type of creditor is those who have the lien against a particular portion of property. This property is generally used to satisfy a debt to a creditor who has the right of lien. Then the property is used to satisfy the debts to other creditors. There are several ways to generate a lien. Any act or contract between the parties or any kind of judicial proceedings can lead to the generation of a lien.

The second type of creditor is one who has precedence or priority interest. Usually, a priority can arise through constitutional law. If a creditor holds a priority his debts have to be paid first than any other debts when any debtor becomes bankrupt.

The third and final type of creditor is one who doesn’t hold a lien against the debtor’s property or possess any type of legal priority.

Legal Tools Used By Creditors

Creditors can use several legal steps in order to satisfy their debt. Creditors mainly use judicial and statutory procedures to get their debts satisfied. There are several legal tools that a creditor can use against the debtors. Attachment is one such tool, which is known as a constitutional remedy by use of which a creditor can seize the property of a debtor, in case the debtor doesn’t pack back.

Another tool termed as garnishment provides the creditor right to collect part of a debt in the form of wages in order to satisfy the debt. Replevin also used by several creditors is right that allows a creditor to seize financial properties like security interest or property interest in order to satisfy obligations. Receivership is a legal tool, which involves a third party apart from the creditor and debtor. The third party is appointed by a court who organizes proper and timely dispose of debtor’s property.

Examples of Creditor in a sentence

The creditor always has a better memory than the debtor.
Generally, debtors must negotiate with each creditor separately, and they usually face the ordeal without prior advice.
A creditor of a partnership may sue any partner for the full amount of the debt.
Given the circumstances we are understandably reluctant to raise this matter with the creditor organisations.
The company is in trouble; If they don’t find a willing creditor, they will go bankrupt.
If one has to pay a creditor £200 in one year’s time, its not necessary to have £200 today.
As a creditor, my landlord is entitled to evict me if I don’t keep up with my rent.
By lending money to a customer, a bank becomes a creditor.
If Paul doesn’t keep up to date with payments due to his creditor, he may lose his house.
Although John was no longer able pay his creditor, he was at least somewhat relieved that the creditors could not repossess his house as his debt was unsecured.

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Creditor. Payroll & Accounting Heaven Ltd.
May 27, 2023
Chicago Manual of Style (CMS):
Creditor. Payroll & Accounting Heaven Ltd. (accessed: May 27, 2023).
American Psychological Association (APA):
Creditor. Retrieved May 27, 2023
, from website:

Definition Sources

Definitions for Creditor are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th March, 2020 | 0 Views.