Close this search box.

Table of Contents

Impaired Credit


Impaired credit refers to an individual’s or entity’s diminished creditworthiness, often resulting from their inability to consistently meet debt obligations, late payments, bankruptcy, or defaulting on loans. This negatively impacts their credit score and reputation, making it more difficult for them to secure additional loans or favorable credit terms. Impaired credit often indicates higher lending risk for financial institutions considering lending to the borrower.


The phonetic pronunciation of “Impaired Credit” is /ɪmˈpeərd ˈkrɛdɪt/.

Key Takeaways

  1. Impaired credit refers to a situation where an individual or business has a poor credit history, making it difficult for them to qualify for loans or credit at favorable terms.
  2. Causes for impaired credit may include late payments, defaults, bankruptcy, high debt levels, and other negative financial occurrences that are present in one’s credit report.
  3. Improving impaired credit typically requires diligent payment of debts, establishing a positive financial history, and seeking professional assistance if needed, such as credit counseling services.


Impaired Credit is an important business/finance term because it indicates a borrower’s history of not meeting credit obligations, which can result in a higher risk perception for lenders and investors. This can have significant consequences for the borrower, including reduced access to credit, higher interest rates on loans, and difficulties in securing financing for essential purchases like homes or vehicles. Furthermore, it can also adversely affect businesses by lowering their creditworthiness, ultimately restricting their growth potential and ability to access additional funding sources. Addressing impaired credit is crucial for maintaining financial stability and fostering positive financing relationships in both personal and business contexts.


Impaired credit is a vital aspect in the finance and business world as it indicates a deterioration in the creditworthiness of an individual or an organization. The purpose of identifying impaired credit is to assess the level of risk associated with lending or extending credit to borrowers with a history of defaulting on their obligations. A borrower’s credit becomes impaired due to late or missed payments, bankruptcy, or other negative events, which, in turn, poses a higher chance of not repaying future debts. Therefore, identifying impaired credit aids lenders and financial institutions in making informed decisions to manage the exposure to such risks and safeguard their interests. Furthermore, impaired credit serves as a warning signal for borrowers, businesses, and regulators, prompting them to take corrective measures and avoid potential financial losses. For borrowers, the awareness of their impaired credit encourages them to improve their credit score by adopting better financial habits, such as timely payments, debt consolidation, or debt settlement. On the other hand, businesses and financial institutions may employ stricter lending policies, such as shorter repayment periods, increased interest rates, or collateral requirements, for borrowers with impaired credit. These measures help protect the institutions from significant losses due to loan defaults while also promoting responsible borrowing practices among customers. Overall, impaired credit plays a crucial role in maintaining the stability and sustainability of financial markets.


1. Consumer Credit Impairment: John had always maintained a strong credit score and timely repayments for his personal loans and credit card bills. However, he suddenly lost his job and struggled to find a new one that paid as well. Consequently, his monthly payments became irregular, causing his credit score to drop and marking his credit as impaired. 2. Small Business Impairment: Mary owns a small restaurant in her hometown, which she financed through a bank loan. After a natural disaster caused severe damage to her business, revenues declined significantly and she could not afford to pay suppliers. As a result, Mary defaulted on her bank loan, impairing her business credit. It became increasingly difficult for her to obtain additional financing or negotiate favorable credit terms with suppliers. 3. Corporate Impairment: XYZ Corporation experienced a downturn in its industry due to changing market conditions. As the company’s revenues and profits declined, it struggled to meet its debt obligations and defaulted on some of its loans. Credit rating agencies downgraded the company’s credit rating, leading to an impaired credit status. This eventually resulted in higher borrowing costs and limited access to credit markets for the corporation.

Frequently Asked Questions(FAQ)

What is Impaired Credit?
Impaired Credit refers to a borrower’s credit status, which demonstrates a history of late payments, defaults, or bankruptcies. It typically implies that the borrower has a lower credit score and indicates a higher risk for lenders when providing loans or credit.
What factors contribute to Impaired Credit?
Factors that contribute to Impaired Credit include late or missed payments, loan defaults, bankruptcies, foreclosure, high credit utilization, a large number of credit inquiries, and other negative financial events that impact the borrower’s credit history and score.
How does Impaired Credit affect an individual or business’s ability to obtain financing?
Lenders and financial institutions often view individuals or businesses with Impaired Credit as high-risk borrowers. As a result, they may offer loans with higher interest rates, less favorable terms, or require substantial collateral. In some cases, they may deny loan applications altogether due to the perceived risk.
Can individuals or businesses improve their Impaired Credit?
Yes, individuals and businesses can improve their Impaired Credit through various methods. Some common steps for improvement include timely payments on existing debt, reducing credit utilization, disputing inaccuracies in credit reports, and making responsible financial decisions. It is important to note that improving Impaired Credit takes time, discipline, and patience.
How long does negative information stay on a credit report, affecting one’s credit status?
Different types of negative information remain on credit reports for varying lengths of time:- Late payments: Typically 7 years from the date of the late payment.- Bankruptcies: Chapter 7 stays for 10 years; Chapter 13 stays for 7 years.- Collections & Charge-offs: Approximately 7 years.- Inquiries: 2 years.These time frames vary depending on the jurisdiction and specific credit reporting agency involved.
Do lenders only consider a borrower’s credit score when assessing the risk of Impaired Credit?
Though a borrower’s credit score is an essential factor in evaluating credit risk, lenders often consider additional factors as well. These may include employment history, income, outstanding debts, and collateral available. Many lenders use a comprehensive evaluation process to determine the borrower’s overall risk and ability to repay a loan.

Related Finance Terms

  • Debt Restructuring
  • Loan Loss Provisions
  • Credit Risk Management
  • Non-Performing Loans (NPLs)
  • Write-Offs

Sources for More Information

About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More