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Glossary
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Credit risk

What is credit risk?

Credit risk is the possibility that a borrower will default on any type of debt by failing to make required payments. If a company lends money to customers or other businesses, there's always a risk that the borrowers may not repay the loan, leading to a financial loss for the company.

Lenders and investors assess credit risk based on a variety of factors, including past repayment history, the borrower's current financial health, and the overall economic climate. In response to credit risk, lenders may increase the interest rate charged for the money they lend, or they may establish a credit limit to control the amount of money they're willing to risk. Credit risk management is crucial in ensuring a company's financial stability.

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