Credit Risk Law and Legal Definition

Credit Risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Another term for credit risk is default risk. Investor losses include lost principal and interest, decreased cash flow, and increased collection costs, which arise in a number of circumstances. Such as, a consumer not making a payment due on a mortgage loan, credit card, line of credit, or other loan. Similarly, a business does not make a payment due on a mortgage, credit card, line of credit, or other loan.