Credit Risk

Credit risk means the risk that a borrower may fail to repay money they owe. In simple terms, credit risk is the chance that a lender does not get paid back. Credit risk is important because it affects bond yields, loan rates, bank profits, and financial stability. When credit risk rises, lenders may demand higher interest rates or become less willing to lend. For example, if investors worry that a company may not repay its bonds, the company’s borrowing costs may rise. Credit risk is not the same for all borrowers. Governments, large companies, small businesses, and consumers can have very different levels of credit risk.