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.

BREAKING DOWN '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 Rating

    An assessment of the creditworthiness of a borrower in general ...
  2. Impairment

    1. A reduction in a company's stated capital. 2. The total capital ...
  3. Credit Agency

    A for-profit company that collects information about individuals' ...
  4. Good Credit

    A qualification of an individual's credit history that indicates ...
  5. Credit Analyst

    A financial professional who has expertise in evaluating the ...
  6. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
Related Articles
  1. Investing

    How Is Impairment Loss Calculated?

    Impairment loss is the decrease in an asset’s net carrying value that exceeds the future undisclosed cash flow it should generate.
  2. Investing

    Explaining Credit Ratings

    A credit rating is a third-party assessment about the creditworthiness of an individual or entity.
  3. Managing Wealth

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  4. Personal Finance

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  5. Personal Finance

    Is Your Credit Score at 850? It Can Be!

    Use these tips to increase your credit score and your ability to get low interest rates on loans.
  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. Personal Finance

    How Your Credit Score Compares to the Average American's

    While only a small percentage of Americans have terrible credit scores, a whopping 30% have poor or bad credit, according to the Consumer Financial Protection Bureau.
  8. Personal Finance

    Which Is More Important: Credit Report or Credit Score?

    Here's the difference between a credit report and credit score, and which is more important.
  9. Personal Finance

    10 Ways Advisors Can Help Clients Improve Credit Scores

    Properly managing credit scores can help get new loans and save a lot of money in the process.
  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 do businesses determine if an asset may be impaired?

    Find out how a business should determine if an asset may be impaired in accordance with the generally accepted accounting ... Read Answer >>
  2. How do accountants record impaired assets?

    Learn why accountants need to identify and record impaired assets, how impairments are measured and how they impact financial ... Read Answer >>
  3. What's the difference between a credit rating agency and a credit bureau?

    Learn how to differentiate between credit rating agencies and credit bureaus, two industries that distribute valuable risk ... Read Answer >>
  4. What's the difference between credit score and credit history?

    Check out the differences between credit score and credit history, and learn how your credit history is used to create your ... Read Answer >>
  5. How do you write off impaired assets from the financial statement?

    Learn what an impaired asset is and how it effects a company's financial statements. Understand how an accountant writes ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center