credit enhancement

Definition

The process of reducing credit risk by requiring collateral, insurance, or other agreements to provide the lender with reassurance that it will be compensated if the borrower defaulted.

Use credit enhancement in a sentence

You should try and make sure that you always pay things off on time or early so you may get a credit enhancement.

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The bank placed a collateral on Tim's house as a Credit Enhancement before providing a loan to Tim's start-up company.

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Of the many types of Credit Enhancement available to the owner of a small business, use of personal assets is to be discouraged.

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excess spread underlying debt