Undergrad Senior wanting to be a Credit Analyst

So let's get Mickey Mouse simple on terminology for clarification:

• Spreading financials is when you take financials and input them into a system/spreadsheet so you can look at several different periods of time all at once. The system can produce ratios and common size figures to aid in analysis.
  • Ideally, the credit analyst applies consistency in spreading so that the analysis is meaningful (example: putting a "loan from shareholder" in non-current assets so as not to inaccurately influence current/quick ratio).
  • While this can be mind-numbingly simple - it is an exceedingly important task, particularly in terms of a commercial bank where risk ratings are (typically) intended to be formulaically driven by inputs from the spreads and therefore consistency is key. Where the spread guidelines don't make sense, it is important for the credit analyst to pay attention to those hyper-specific details and use expert judgement to spread what they think is right rather than just do it "per manual" when that way would reduce the meaning of certain ratios. This function gets more and more critical the more complex a borrower gets and the credit analyst is (typically) the only one really comparing the spreads against the source financials so understanding the nuances of the accounting rules matter.
    • Your credit officers are almost universally looking at the spreads so if those aren't right and they make a decision that they otherwise would not if the spreads were done a different way... that has real and tangible impacts to the business.
    • Ex: revenue recognition under GAAP need not reflect the actual reality of cash flows. Similar to certain expense recognition.
    • Ex: go look at the financials for a municipality and REALLY read the notes and google all the words you don't understand. Then spread the front page of a municipality audit and tell me if that represents the "reality" of the government's financial capacity to repay debt (spoiler: well, no. But also, yes!)
• Financial modeling is when you are taking those same source financials and building a spreadsheet (or other system) that can recreate those historical financials but instead of each number being hard-coded, it is based on underlying "price & quantity" type of inputs so that you can dynamically see the impact of "selling more of X" or "raising the price of X" while seeing the impact of "eliminating expense Y" or "reducing expense Z to some % of sales" driven by some specific knowledge about the operations of the business and the nature of fixed/variable costs.
  • Almost universally, this is more than what is required or expected of a credit analyst because it is highly specialized knowledge requiring deep analysis of an industry, comp set, strategic plans of the business, and interviews with management.
  • Plus, the business of credit analysis is almost universally predicated on "past performance DOES influence future expectations." The entire business is statistically founded on this principal. 

  • So yeah, you will conduct an "analysis" of some of those future changes (if material changes are known like in the case of M&A) but you aren't the one building the model. That will almost always be done by either the corporate development people internally at the borrower or by the IB team retained by the borrower if its an M&A deal. If its a true small business without a corp dev team and not retaining a bank to execute a deal like that... your model just isn't going to influence the credit decision. And outside of M&A or material changes to the business, a normal transaction of just refinancing existing debt or providing new money to finance acquisition of some asset is still going to be primarily based on historical performance. 

So, understand that you can make all the models you want as an analyst. It just (typically) won't matter and you (as an analyst) are unlikely to have the information necessary to make that model particularly "powerful" or "meaningful." Still, perhaps, useful for the word-based portion of your analysis but don't kid yourself into thinking there's a credit analyst at a (typical) commercial bank doing "meaningful models" on the reg. Just not part of the structure of the industry for the same reason a soap bubble is round. 

In many cases, the credit analyst at a commercial bank is also not the one doing the word-based portion of the analysis, either, because they just don't have the experience to do so! You gots to earn your stripes in this business and repetition is the mother of learning. You do a good job as an analyst and you'll get a chance to be the person sending the financials to an analyst. That person (typically an "underwriter" or "portfolio manager") has the task of comparing the spreads produced by an analyst against the source financials and confirming if they were done correctly. If they weren't... I can assure you those people will remember your name. If they are consistently done well... your name could shine. No one is a credit analyst forever. Just like on the IB side of things, it's intended to be an entry-level type of thing. Don't come into finance thinking you are hot shit on day 1 and won't settle for not contributing whole cents to the bank's EPS right out of the gate. 

Your other questions:

1. I would submit that you would find it exceptionally difficult to start as a credit analyst and transition to an equity analyst. Not outside the realm of possibility, but again... 100% NOT going to be a straight line. Expect several steps (and years) in between. Additional steps/years if you start out at a bank that does not already have a corporate/investment bank with its own equity research division (which itself is a dwindling number of institutions).
2. YMMV on the MBA. Too many potential factors at play to say whether this would make a difference or not. The size of your bank, the types of credits you are analyzing, where you get the MBA from, and (most importantly) your network. Same for the CFA. I have seen really sharp guys study for years to get the CFA only to just continue on in the credit cubicles for years because they didn't get the practical exposure to apply that CFA training. Similarly, I've seen some real knuckle draggers make bank and move size because they just focused on getting in the right seat and getting drinks with the right people to get a shot at the big leagues.