What are the risk factors associated with credit?

Question

Accepted Answer

Credit risk factors include borrower default, economic conditions, and collateral quality, impacting lending decisions.

Borrower Default: The risk that a borrower fails to repay the loan, e.g., a business going bankrupt.
Economic Conditions: Economic downturns can increase default rates, e.g., during a recession.
Collateral Quality: The value and liquidity of collateral can affect recovery in case of default, e.g., real estate vs. stocks.
Credit History: A borrower's past credit behavior influences risk assessment, e.g., a history of late payments.
Interest Rate Risk: Changes in interest rates can affect borrowers' ability to repay, e.g., rising rates increasing loan costs.

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