The danger (risk) of incurring losses because a counterparty in a derivative transaction has defaulted (i.e., is no more able to fulfill obligations associated with the derivative contract), partially or completely. It may arise from inability or unwillingness of the party to meet such obligations, or from any other reason. An example is the credit risk associated with over-the-counter (OTC) derivatives.

Broadly speaking, the credit risk is also referred to as a default risk. However, credit risk is wider in scope and includes other forms (subclasses) of risk such as counterparty risk, deteriorating credit quality, etc.