A credit risk analyst studies available information about loans to determine the probability of default and advises on risk-based pricing. They also diversify loans and work with both private and commercial loans. A degree in business, finance, or a similar field is required.
A credit risk analyst, also known as a credit risk manager or credit analyst, advises your employer on granting you a loan. To do this, the analyst studies all available information about current and past loans and creates a system to decide how likely it is that a person or organization will default on a loan. He or she is also responsible for keeping that system up to date. He or she can work with private or commercial loans.
Creating a system for credit analysis can be quite complicated, and the methods vary somewhat from group to group. Typically, a credit risk analyst gathers all available information about your employer’s loans to date. Then he or she uses statistics to figure out the probability of defaulting on the loan. Whenever someone applies for a loan, the analyst enters the applicant’s information into the system to see the probability of default. Although a credit analysis system only needs to be set up once, it needs to be constantly updated with information for each loan granted.
When an applicant has a higher probability of default, a credit risk analyst will generally advise risk-based pricing. Risk-based pricing is the idea that banks should charge higher interest rates to organizations or people with higher credit risk. Banks can also lower the credit limit or overdraft for customers with low scores. The lower the risk involved, the more an institution will lend and have a better interest.
Another part of a credit risk analyst’s job is to diversify loans. The term “diversification” refers to the idea that financial institutions need to lend to a diverse pool of applicants so that their money is not tied to one sector of business. An analyst must keep track of which loans have been made to keep them diverse.
In many ways, credit analysis on private loans, often referred to as consumer credit risk, is easier than on commercial loans. The private loan category includes mortgages, credit cards, overdrafts and unsecured personal loans of all types. In these, the analyst simply collects information about the candidate’s financial history, enters it into the system used by the company, and then makes a recommendation.
On the other hand, commercial loans are often considered more complicated than private loans, because the credit risk analyst must decide whether the business is likely to succeed. This can be particularly difficult when considering entrepreneur loans, because there is often no information available for a new product. When working with commercial loans, an analyst must frequently visit the company or organization applying for a loan to gather information.
To work in credit risk analysis, you must obtain a four-year degree in business, finance, or a similar field. Many also earn master’s degrees, usually in business administration, because the additional degree often results in better pay. Also, most credit risk analysts undergo extensive training whenever they have a new employer.
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