Credit risk refers to the potential loss that a lender or issuer may incur due to the failure of a borrower or debtor to make payments as per the agreed terms. In other words, it is the risk that an individual or entity will fail to meet its financial obligations and result in losses for the creditor. This can occur when borrowers are unable to repay their loans due to various reasons such as economic downturns, changes in market conditions, or personal issues like job loss or illness. Credit risk is a significant concern for lenders and investors who extend credit to individuals or businesses, and they often take measures to mitigate this risk through practices such as credit scoring, collateral requirements, and careful underwriting.