Definition of Creditor

What is the definition of the term "creditor"? What does the term "creditor" mean?

A "creditor" is a person, bank or company that is owed money.

Let's look at a few examples to fully illustrate the proper usage of the term "creditor":

Example 1

You sign up for an American Express credit card. After a few months of usage, you owe $1,000 to American Express.

American Express is one of your "creditors", as you currently owe the company $1,000.

Example 2

You apply for a $200,000 mortgage from the bank and are accepted.

The bank is now one of your creditors, as you currently owe them $200,000 on your mortgage.

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There is a key difference between these two creditors - one is an "unsecured creditor", while the other is a "secured creditor".

In the case of the mortgage, the bank has collateral in the form of the house. If you defaulted on your mortgage, the bank would seize the house from you and sell it in an attempt to recoup their money.

In the case of the credit card, the credit card company has no collateral and would need to sue you to recoup their money if you ended up not paying your debt.

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