We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Credit Impairment?

Malcolm Tatum
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Credit impairment is any type of activity that leads to the reduction of the credit rating enjoyed by an individual or a business. There are many different events that can lead to impaired credit. Some triggers for damaged credit have to do with specific actions taken by the debtor, while others are due to circumstances outside the control of that debtor. In any instance, the result of credit impairment is difficulty in obtaining credit or borrowing money, due to the decreased confidence of lenders in the ability of the business or individual to repay the debt according to terms.

One of the most common reasons for credit impairment is the consistent late payment of debt obligations on the part of the debtor. The slow payment is typically reported to credit agencies, which then factor those late payments into the calculation of the debtor’s credit worthiness. Over time, failure to pay outstanding debts according to terms leads to FICO score reductions that may take years to recover.

A similar scenario involves situations in which the debtor has the desire to honor his or her obligations, but suddenly lacks the resources necessary. The loss of a job and the resulting loss of a steady flow of income will have an adverse effect on the ability to pay car loans, mortgages, credit card balances, and any other type of debt. Since credit ratings are based on both the ability to pay debt on time and the amount of income generated by the debtor, losing a job can result in credit impairment from two directions.

At times, credit impairment comes about due to events beyond the control of the debtor. The death of a spouse and the subsequent loss of income may lead to financial difficulties that damage the credit rating of the surviving spouse. In like manner, an extended illness that creates additional debt while also limiting the ability of an individual to generate income would also increase the likelihood of default and make it harder for the debtor to obtain additional credit or financial assistance from lenders. Even if the credit rating is not damaged enough to prevent the debtor from borrowing money, the new lender is likely to charge a higher rate of interest as one way of minimizing the degree of risk he or she is assuming.

When some type of credit impairment takes place, it is important to begin the process of repairing the damage as quickly as possible. Beginning to pay obligations on time will go a long way toward reversing the downward trend in the credit rating. Securing a new job that comes with a salary that is similar to the former source of income will also help stabilize and eventually renew the credit rating and FICO score. As more debt is retired and the ratio between debt and income becomes more favorable, the credit rating will slowly begin to improve. While the process can take a great deal of time and effort, the end result is usually worth the trouble.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.