Definition:
More or less synonymous with credit risk, default risk is the chance a lender takes that a borrower/bond issuer will be unable to fulfill their payment obligations according to the contract that governs the debt in question. Ratings agencies like Moody's and Standard & Poor's assign letter-grade ratings to different kinds of debt issued by different institutions to give a measure of the risk the lender takes in purchasing certain bonds. On an individual level, a financial institution assesses a person's default risk when deciding whether to loan money to them to run their business, buy a home, or finance a car.
