Impaired Credit


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.

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  1. How many free credit reports can you get per year?

    Individuals with valid Social Security numbers are permitted to receive up to three credit reports every 12 months rather ... Read Full Answer >>
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    Free credit reports do not impact your credit score. Credit inquiries are divided into two categories: soft inquiries and ... Read Full Answer >>
  3. Does a free credit report show your credit score?

    The free credit reports available from the three credit reporting agencies do not include your credit score. Under the 2 ... Read Full Answer >>
  4. Can a Best Buy credit card help you build credit?

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