1 min read · Jan 4, 2023
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Credit risk and default risk are two terms that are often used interchangeably, but they do have slightly different meanings.
Credit risk refers to the risk that a borrower will not be able to meet their payment obligations. This risk can arise due to a variety of factors, including financial difficulties, changes in market conditions, or changes in the borrower’s circ*mstances. Credit risk is a broad term that can apply to any type of credit instrument, including loans, bonds, and other financial instruments.
Default risk, on the other hand, refers specifically to the risk that a borrower will default on their debt obligations. Default occurs when a borrower is unable to make their required payments on time and is considered to be in default. Default risk is a subset of credit risk, as all default risk is credit risk, but not all credit risk is default risk.
In summary, credit risk refers to the risk that a borrower will not be able to meet their payment obligations, while default risk refers to the risk that a borrower will default on their debt obligations. Both terms are used to assess the risk associated with lending or borrowing money.
