The 6 key credit risk mitigation techniques encompass collateralization, credit insurance, diversification, credit derivatives, credit scoring, and effective loan structuring. Collateralization involves securing loans with valuable assets, while credit insurance transfers risk to third-party insurers.
Diversification spreads risk across various borrowers and sectors, while credit derivatives allow institutions to hedge against credit risk. Credit scoring aids in assessing borrower creditworthiness, and meticulous loan structuring ensures terms align with risk profiles, collectively fortifying financial institutions against potential losses.
