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Impaired Credit

What is '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.

Explaining '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.


Further Reading


Financial policies, investment, and the financial crisis: Impaired credit channel or diminished demand for capital?
papers.ssrn.com [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

Troubled banks, impaired foreign direct investment: the role of relative access to creditTroubled banks, impaired foreign direct investment: the role of relative access to credit
www.aeaweb.org [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

Financial policies and the financial crisis: How important was the systemic credit contraction for industrial corporations?Financial policies and the financial crisis: How important was the systemic credit contraction for industrial corporations?
www.nber.org [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

How does relationship banking influence credit financing? Evidence from the financial crisisHow does relationship banking influence credit financing? Evidence from the financial crisis
www.econstor.eu [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

How does trade evolve in the aftermath of financial crises?How does trade evolve in the aftermath of financial crises?
link.springer.com [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

The transmission of financial stress from advanced to emerging economiesThe transmission of financial stress from advanced to emerging economies
www.tandfonline.com [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

Impaired financing determinants of Islamic banks in MalaysiaImpaired financing determinants of Islamic banks in Malaysia
ojs.amhinternational.com [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

Monetary policy during financial crises: Is the transmission mechanism impaired?Monetary policy during financial crises: Is the transmission mechanism impaired?
www.econstor.eu [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …

Do credit shocks affect labor demand? Evidence for employment and wages during the financial crisisDo credit shocks affect labor demand? Evidence for employment and wages during the financial crisis
www.sciencedirect.com [PDF]
… Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University … and unrated firms is abnormally low throughout the crisis, whereas an impaired credit supply by … making firms less credit worthy and leading to a flight to quality that increased …


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