Purpose <p>The study investigates the impact of credit market factors on financial development in 114 economies from 2001 to 2021.</p> Design/Methodology/Approach <p>We applied Pooled Mean Group estimation to examine the association between credit market factors and financial development. Instrumental Variable regression is used to analyse the impact of credit market factors on financial development. We also employed panel threshold regression to examine the heterogeneity between different groups of countries regarding credit market factors and financial development.</p> Findings <p>Using Pooled Mean Group analysis, we found that credit market factors are associated with domestic credit in the long run, whereas they are found to be insignificant in the short run. Furthermore, the instrumental variable regression reveals that credit market factors, including bank liquid reserves, net interest margin, bank overhead costs, and liquid assets, have a significant influence on domestic credit. Panel threshold regression findings highlight that credit market factors interact with credit allocated to the private sector differently depending on the level of financial development in the economy.</p> Practical Implications <p>This study contributes by helping policymakers design and implement policies that support financial development, including financial incentives, credit risk models, regulatory and supervisory measures, and reforms for financial institutions.</p> Originality/Value <p>Financially developed countries tend to perform better in terms of investment, capital flow, and economic development. The study emphasizes the significance of financial development and its relationship with credit market factors.</p>