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. Authorization Only

    A type of sale transaction that creates a pending transaction ...
  4. Authorization Date

    The month, day and year when a credit card transaction is approved ...
  5. Standard Floor Limit

    The amount of money that can be charged in a transaction before ...
  6. Trading Partner Agreement

    An agreement drawn up by two parties that have agreed to trade ...
Related Articles
  1. 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 ...
  2. Investing

    Understanding Related-Party Transactions

    In business, a related-party transaction refers to a transaction where parties on both sides have a common interest or relationship.
  3. Small Business

    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.
  4. 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.
  5. 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.
  6. 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. ...
  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. 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.
  9. Investing

    What Are Transaction Costs?

    Transaction costs are expenses incurred from buying or selling securities.
  10. 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.
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. 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 >>
  5. 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 >>
  6. Can a checking account affect your credit score?

    Find out if having a checking account can have a negative impact on your credit report. Generally, it doesn't, but there ... Read Answer >>
Trading Center