A credit risk analyst, also known as a credit risk manager or credit analyst, advises an employer on whether or not to grant a loan. To do so, the analyst examines all available data on current and previous loans and devises a system for determining the likelihood of a person or organization defaulting on a loan. He or she is also responsible for keeping the system current. He or she is capable of working with both private and commercial loans.
Creating a system for credit analysis can be difficult, and methods differ slightly from one group to the next. In general, a credit risk analyst compiles all available data on the loans that his employer has provided thus far. Then he or she employs statistics to determine the likelihood of default on the loan. When a person applies for a loan, the analyst enters their information into the system to determine the likelihood of default. Although a credit analysis system only needs to be set up once, it must be updated on a regular basis with data from each loan that is given.
A credit risk analyst will often recommend risk-based pricing when an applicant has a higher risk of default. Banks should charge higher interest to organizations or people with a higher credit risk, according to risk-based pricing. Customers with poor credit scores may also have their credit limits or overdraft limits reduced by banks. The lower the risk, the more money an institution will lend, and at a better rate.
Diversifying loans is another aspect of a credit risk analyst’s job. The term “diversification” refers to the idea that financial institutions should lend to a diverse range of applicants so that their funds are not tied to a single industry. To keep the loans diverse, an analyst must keep track of which ones have been given.
Private loan credit analysis, also known as consumer credit risk, is easier in many ways than commercial loan credit analysis. Mortgages, credit cards, overdrafts, and unsecured personal loans of all kinds fall under the category of private loans. In these cases, the analyst simply gathers data on the applicant’s financial history, enters it into the company’s system, and then makes a recommendation.
Commercial loans, on the other hand, are frequently thought to be more difficult than private loans because the credit risk analyst must determine whether the business is likely to succeed. This is especially difficult when considering loans for entrepreneurs because new products often have no information available. In order to gather information for commercial loans, an analyst must frequently visit the business or organization requesting the loan.
A four-year bachelor’s degree in business, finance, or a related field is required to work in credit risk analysis. Many people pursue master’s degrees, typically in business administration, because the additional education often leads to higher pay. Furthermore, whenever they start working for a new company, most credit risk analysts will undergo extensive training.