A credit risk manager assesses the likelihood of a borrower defaulting on a loan. Banks, private companies that issue credit, mortgage companies, and credit card service providers all employ risk managers. A credit card risk manager with experience may work for large corporations or lending institutions, designing structural models that allow people to quickly access risk.
When someone takes out a loan, whether it’s a credit card, a car loan, or a mortgage, there’s a chance they’ll default. Lenders, specifically the credit risk manager, use a variety of factors to determine the risk of default. The risk level is then used to determine whether the loan should be approved or denied, as well as the interest rate.
In order to calculate a person’s risk, most lenders use a FICO score or another credit score from one of the three major credit bureaus- Equifax, Experian, and TransUnion. The risk of default is also determined using income data, employment history, and other related factors. A credit manager considers all of these factors when deciding whether or not to extend credit, how much credit to extend, and at what rate.
A FICO score is a three-digit number that ranges between 300 and 850. Scores of 700 or higher are considered good and will qualify buyers for the majority of prime loans. Borrowers with lower credit scores may only be eligible for sub-prime loans.
In many industries, the role of a credit risk manager has changed as FICO scores and credit scoring have become more popular. When someone applied to borrow money in the past, they had to go through a lengthy underwriting process. This underwriting process necessitated a thorough examination of financial records.
With the introduction of electronic credit checks, underwriting has become much easier. A credit risk manager may be able to simply pull someone’s credit report and assess the risk of lending money to that person. In some cases, the manager will simply examine the score and compare it to a table to determine the appropriate interest rate and credit line.
A senior credit risk manager may be able to assist in establishing the appropriate standards that managers and loan officers will use when approving a loan. A credit risk manager, for example, might devise an algorithm or spreadsheet that states that a person with a specific credit score and income should always be offered a specific dollar amount and interest rate. Instead of asking the manager to personally review every applicant to determine risk, lower-level employees can use this standard to extend or deny credit.