Credit Risk Definition

Credit Risk is the risk of decrease in principal or decrease in a financial reward stemming at a borrower’s failure to settle a loan or otherwise meet a contractual accountability. Credit risk arises every time a borrower is seeking to use future cash flows to repay a current debts. Investors are compensated for assuming credit risk using interest payments from borrower or issuer of any debt obligation. Credit risk is closely stuck just using the potential return of the investment, the perhaps most obviously being that the particular yields on provides correlate strongly for their perceived credit risk.