DEFINITION of 'Credit Netting'

A system whereby the number of credit checks on financial transactions is reduced by entering into agreements that simply net all transactions. These agreements are made between large banks and other financial institutions and place all current and future transactions into one agreement, removing the need for credit checks on each transaction.

BREAKING DOWN 'Credit Netting'

Most financial transactions that deal with credit involve credit checks to ensure that the borrowing party can meet the obligation of the transactions. However, due to the active nature of large market participants, the constant checking and rechecking of credit is not only time consuming, but also has the potential to create missed opportunities. The process becomes more efficient for all parties involved if they enter into larger scale agreements.

RELATED TERMS
  1. Credit Checking

    A check performed on the financial backing of the counterparties ...
  2. Transaction Identifier

    A unique identifier assigned by a business to each transaction ...
  3. Standard Floor Limit

    The amount of money that can be charged in a transaction before ...
  4. Net Settlement

    The resolution of all of a bank's transactions at the end of ...
  5. Structured Transaction

    A series of transactions that could have been treated as a single ...
  6. Round Trip Transaction Costs

    All costs associated with opening and closing a financial or ...
Related Articles
  1. Tech

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  2. Personal Finance

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  3. Small Business

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  4. Personal Finance

    Take the Right Steps to Build Excellent Credit

    There are several things you can do to protect and improve your credit score.
  5. Personal Finance

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  6. Trading

    ISDA Master Agreement

    The ISDA Master Agreement is a document outlining the terms of an over-the-counter derivatives transaction between two parties. This document serves as a standard agreement in these transactions ...
  7. Financial Advisor

    How To Cash In On Credit Cards

    How can an investor cash in on rising credit card use? There isn't an ETF yet, so let's look at the companies themselves.
  8. Personal Finance

    Monitoring Your Credit? Keep These 5 Things in Mind

    Your credit history is a key financial diary of your life. Here are five things to consider when making sure your credit is healthy.
  9. Personal Finance

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  10. Taxes

    What IRS Form 8949 Is For

    Selling a painting or that lake property? Disposing of your fossil fuel stocks? You need to know about this IRS form.
RELATED FAQS
  1. How are arm's-length transactions determined by law?

    Determine if transactions are conducted at arm's length by checking if the parties to a contract are independent and transact ... Read Answer >>
  2. Are arm's length transactions always better than transactions not at arm's length?

    Transactions not at arm's length have real tax and other consequences for individuals and businesses, but they are not necessarily ... Read Answer >>
  3. Is it possible to have a credit limit that's too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
  4. What is the difference between available credit and credit limit?

    Explore the difference between available credit and credit limit and the implications different account balances have on ... Read Answer >>
  5. Why do high profiting sales mitigate credit risk?

    Learn more about credit risk in loaning to individuals and businesses. Understand how credit risk is determined and the impact ... Read Answer >>
Trading Center