The possibility that a borrower or counterparty will fail to meet their debt obligations or contractual commitments, potentially causing financial loss to the lender or investor. This risk varies based on the creditworthiness of the obligated party.
From Latin 'creditum' (something entrusted) and Old English 'risc' (danger). Credit risk assessment became formalized in banking during the 19th century industrial expansion, with modern quantitative methods developing in the late 20th century.
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