Credit Risk

Definition

• The risk of loss one assumes under a financial contract that a borrower or a counter-party to a loan or other credit-related contract may default or fail to perform its obligations.

Synonyms
unreliable, unworthy of credit, hazard, liability

Related Terms and Acronyms

• Alienation Clause — Definition,
  • A requirement that the borrower pay the mortgage in full upon transfer of the property.
• Credit — Definition,
  • Money that a lender gives to a borrower on condition of repayment over a certain period.
• Credit History — Definition,
  • A record of an individual's or company's past borrowing patterns and whether or not debts were repaid on time.
• Credit Insurance — Definition,
  • Insurance that covers borrowers and/or lenders if one is unable to repay debts.
  • A policy that pays off the card debt should the borrower lose his job, die or become disabled. The structure of protection for a revolving credit card debt is calculated each month to cover only the debt that existed at the last billing cycle.
• Credit Rating (CR) — Acronym, Very Important,
  • A judgement of a person's ability to repay debts. The rating is often based on a person's current and projected income and past debt payment history. Also called a credit score.
  ➥ A metric to measure the credit worthiness of a debtor.
• Credit Worthiness — Definition,
  • How likely an individual or entity is to default on their debt.
• Default — Definition,
  • When a borrower fails to fulfill the obligations of a loan or lease.
• Delinquency — Definition,
  • Failure to make mortgage payments when mortgage payments are due.
• Delinquent Mortgage — Definition, Important,
  • A mortgage loan where the borrower fails to make payments as specified in the loan agreement.
• Gross Debt Service (GDS) — Acronym, Very Important,
  • The total monthly mortgage (or rent) payments, property taxes, utilities and maintenance fees as a percentage of gross monthly income.
  ➥ Used by mortgage lender underwriters to determine one's ability to qualify for a mortgage loan.
• Guaranty — Definition,
  • A promise to assume responsibility for a debt if the borrower defaults.
• Loan — Definition,
  • Letting another party use something of value temporarily.
• Netting — Definition,
  • The offsetting with a counter-party of financial obligations or payments one is owed with those one is entitled to receive, thus reducing the costs arising out of payment settlements. Netting is also used as a risk management tool to help counter-parties reduce their exposure to credit risk.
• Provision for Credit Losses (PCL) — Acronym, Canada,
  • The amount deducted from income equal to the amount by which a bank adjusts its loan balances to reflect anticipated losses on them.
  • A margin set by companies to compensate for losses due to unpaid credit.