Impaired Credit

AAA

DEFINITION of 'Impaired Credit'

A deterioration in the creditworthiness of an individual or entity. This is usually reflected through a lower credit score, in the case of an individual, or a reduction in the credit rating assigned to an entity by a rating agency or lender. The borrower whose credit has been impaired will generally have lesser accessibility to credit facilities and will have to pay a higher rate of interest on loans. Impaired credit may either be a temporary situation that can be reversed, or an early sign that the borrower faces a major financial crisis down the road.

INVESTOPEDIA EXPLAINS 'Impaired Credit'

Impaired credit is usually the result of financial stress brought on by a change in circumstances for an individual or entity. In the case of an individual, impaired credit may be the end result of a job loss, long illness, a steep decline in asset prices and so on. For a corporate entity, creditworthiness may decline if its financial position deteriorates over time due to poor management, increased competition or a weak economy.


Impaired credit, whether at the personal level or at the corporate level, may need drastic changes to be made in order to alleviate financial stress and improve the balance sheet. These changes generally include reducing expenses, selling assets and using cash flow to pay down outstanding debt to bring it to a manageable level.

RELATED TERMS
  1. Credit Control

    A strategy employed by manufacturers and retailers to promote ...
  2. Impairment

    1. A reduction in a company's stated capital. 2. The total capital ...
  3. Impaired Asset

    A company's asset that is worth less on the market than the value ...
  4. Guarantor

    A person who guarantees to pay for someone else's debt if he ...
  5. Bad Debt

    A debt that is not collectible and therefore worthless to the ...
  6. Credit Enhancement

    A method whereby a company attempts to improve its debt or credit ...
RELATED FAQS
  1. Why should I consider looking for the A.M. Best rating before investing in an insurance ...

    An investor considering equity investments in the insurance industry is well advised to check the A.M. Best rating, because ... Read Full Answer >>
  2. What risk factors should investors consider before purchasing a callable bond?

    A number of risk components should be considered in regard to any bond investment since bonds, like any investment, do carry ... Read Full Answer >>
  3. How does lower borrowing costs affect new airlines in the aerospace industry?

    Lower borrowing costs can help a new airline afford to obtain aircraft as well as pay for operating expenses such as salaries ... Read Full Answer >>
  4. Why do zero coupon bonds tend to be volatile?

    Zero coupon bonds are volatile because they do not pay any periodic interest during the life of the bond. Upon maturity, ... Read Full Answer >>
  5. What do creditors have to report to credit bureaus?

    Creditors are not required by law to report anything to credit bureaus, although many businesses choose to report on-time ... Read Full Answer >>
  6. How do I get a higher limit on my credit cards?

    Before applying for a higher credit limit, it is important to demonstrate responsibility. One way to do this is by making ... Read Full Answer >>
Related Articles
  1. Personal Finance

    How A Bad Roommate Can Ruin Your Credit Score

    Living with someone can cut your expenses, but in addition to not doing the dishes, your roommate may do serious damage to your credit.
  2. Credit & Loans

    What's On A Consumer Credit Report?

    A look at the various components and considerations that go into one's credit report and credit score.
  3. Credit & Loans

    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.
  4. Personal Finance

    The Debt Ratings Debate

    Lack of competition and potential conflicts of interest have called the value of these ratings into question.
  5. Investing

    Debt Reckoning

    Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money!
  6. Options & Futures

    Top 7 Most Common Financial Mistakes

    Choose fortune over disaster by avoiding these money traps.
  7. Professionals

    The Advantages That Older Entrepreneurs Enjoy

    Entrepreneurs typically have more experience, more collateral, and more connections when they are in their fifties, and are thus more likely to succeed.
  8. Credit & Loans

    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.
  9. Credit & Loans

    What's a Revolving Line of Credit?

    A revolving line of credit is an arrangement made between a company or an individual and a bank to borrow money on a short-term basis.
  10. Credit & Loans

    Top Credit Cards For The Ultra Rich

    Only a few people qualify for these elite cards. The question is, are the lush perks big bucks can buy you worth the cost?

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center