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. Bad Debt

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

    A method whereby a company attempts to improve its debt or credit ...
  4. Impaired Asset

    A company's asset that is worth less on the market than the value ...
  5. Impairment

    1. A reduction in a company's stated capital. 2. The total capital ...
  6. Guarantor

    A person who guarantees to pay for someone else's debt if he ...
Related Articles
  1. How A Bad Roommate Can Ruin Your Credit ...
    Personal Finance

    How A Bad Roommate Can Ruin Your Credit ...

  2. What's On A Consumer Credit Report? ...
    Credit & Loans

    What's On A Consumer Credit Report? ...

  3. The Importance Of Your Credit Rating
    Credit & Loans

    The Importance Of Your Credit Rating

  4. The Debt Ratings Debate
    Personal Finance

    The Debt Ratings Debate

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center