Credit Risk Management is the process of identifying, assessing, and mitigating the risk that a borrower may default on their financial obligations. This involves analyzing the creditworthiness of individuals or businesses, often using credit scores and financial history to determine the likelihood of repayment. Effective credit risk management helps lenders minimize potential losses and make informed lending decisions. To manage credit risk, financial institutions implement various strategies, such as setting credit limits, diversifying their loan portfolios, and using collateral. Additionally, they may employ tools like credit derivatives and credit insurance to further protect against potential defaults, ensuring a more stable financial environment.