Credit risk encompasses the possibility that lenders, investors, or trading partners will not receive promised principal and interest payments or deliveries. Financial institutions manage credit risk through underwriting standards, credit scoring models, collateral requirements, and portfolio diversification. The 2008 subprime mortgage crisis demonstrated how underestimating credit risk across correlated borrowers can threaten entire financial systems. Organizations measure credit risk using probability of default, loss given default, and exposure at default metrics. Credit derivatives, guarantees, and credit insurance serve as risk transfer mechanisms.