Consumer Credit Risk

Consumer credit risk refers to the risk that a borrower will default on a loan or credit obligation, such as a mortgage, credit card, or personal loan. Lenders assess consumer credit risk based on factors like credit history, income, employment status, and debt levels. Higher credit risk typically leads to higher interest rates or denied credit applications. Managing consumer credit risk is crucial for financial institutions to maintain profitability and reduce loan defaults.

Example

A bank evaluates a credit card applicant's credit score, income, and debt-to-income ratio to determine the likelihood of default and assess the consumer's credit risk.