Credit Risk Analyst

Assesses the creditworthiness of individuals or businesses to determine the likelihood of loan repayment and potential financial risks

Author: Sumedha Vasadi
Sumedha Vasadi
Sumedha Vasadi
I am an undergraduate student keenly interested in behavioural science and economics. I love taking up new challenges, exploring and adapting to new skill sets, and working on interesting projects. Always zealous to learn.
Reviewed By: Austin Anderson
Austin Anderson
Austin Anderson
Consulting | Data Analysis

Austin has been working with Ernst & Young for over four years, starting as a senior consultant before being promoted to a manager. At EY, he focuses on strategy, process and operations improvement, and business transformation consulting services focused on health provider, payer, and public health organizations. Austin specializes in the health industry but supports clients across multiple industries.

Austin has a Bachelor of Science in Engineering and a Masters of Business Administration in Strategy, Management and Organization, both from the University of Michigan.

Last Updated:October 6, 2023

What Is a Credit Risk Analyst?

A Credit Risk Analyst, often referred to as a credit analyst, is a professional whose job is to assess the risk associated with lending money to individuals or businesses. They do this by carefully analyzing financial data to determine if it's safe to extend credit, such as loans or credit lines, to these borrowers.

These analysts are typically employed by commercial banks and investment firms. Their role doesn't stop at just assessing risk; they also play a crucial part in managing and modeling credit risk over time.

Credit risk analysts are crucially essential, specifically for lenders, because they analyze how risky it is to provide a loan or any form of credit to an individual or business. To do this, they examine and review an applicant's financial records, including income and credit history, to determine if the applicant possesses the capability of paying a loan.

Traditionally, many banks have relied on subjective judgment to assess the credit risk of a corporate borrower. They considered various factors such as character, reputation, capital (leverage), capacity to pay, earnings volatility, conditions of the customer's business, the purpose of the loan, and Collateral.

These characteristics are conventionally referred to as the 5 Cs. Developing this type of advanced system is cumbersome and expensive. Incorporating specific qualitative data in a risk model is particularly demanding. 

However, successfully implementing such a risk model eliminates human errors and reduces the potential for misuse of critical data. Commercial institutes have tried to duplicate their decision-making process from time to time. 

Nonetheless, many banks continue to rely primarily on their traditional expert system for evaluating potential borrowers and granting credit to corporate customers.

Key Takeaways

  • Credit risk analysts evaluate financial data to determine whether individuals or businesses are suitable for credit extension.
  • Credit risk analysts play a vital role in assessing loan applicants' creditworthiness, aiding lenders in making informed decisions.
  • Credit Risk Analyst analyze risk factors, monitors trends, and offers recommendations for granting credit.
  • Credit risk analysts' responsibilities encompass assessing credit risk, reviewing credit limits, and contributing to lending decisions based on credit scores.

What Does a Credit Risk Analyst Do?

A credit risk analyst reviews and evaluates the financial history of an individual or company to determine if they are a good candidate for a loan. In other words, Credit Risk Analysts gauge and determine the risk of default to the bank or lender.

They also examine loan applicants' credit, highlight the red flags, and assess the probability that a debtor will default on the loan. 

Credit risk analysts usually do not make the final decision on the grant of loans. They advise the business owners as to their opinions and allow the owner to decide whether to grant the loan.

They usually do their work from their office premises. However, if a small business applies for a loan, credit risk analysts sometimes visit the place of business to see whether its operations make it creditworthy. 

Visiting business places in person allows credit risk analysts to understand the daily operations and better understand how likely the business will succeed and eventually repay the loan.

Credit Risk Analyst Education and Training

The typical education credentials required to become a credit analyst are a business-related bachelor's degree in finance, business, statistics, economics, or accounting. However, they don't need more than a high school certificate.

An MBA is not required either. Regardless, credit risk analysts are increasingly holding or pursuing an MBA to become more competitive for career advancement opportunities. In addition, commercial bankers also undergo intense credit training imparted by their banks or third-party companies.

They need to exhibit excellent problem-solving and interpersonal skills as well. They work primarily with companies and lenders, helping them determine if they should offer credit and, if yes, how much credit. 

Credit Risk Certified (CRC)

Credit risk analyst requirements sometimes include industry certification, such as the Credit Risk Certified (CRC) designation offered by the Risk Management Association (RMA). 

To qualify for this certification, a credit analyst must have at least five years of experience working in loan review. They must also engage in continuing education, pass an examination, and become an RMA member.

Along with study modules to qualify for Credit Risk Certification, the RMA also offers beneficial courses, both self-directed and instructor-led, on concepts such as:

Chartered Financial Analyst (CFA) Designation

Another major part of a credit risk analyst's education can be a Chartered Financial Analyst (CFA) designation. CFA certification is accomplished through the CFA Institute's Chartered Financial Analyst program. 

It includes training in professionalism, ethics, portfolio management, and investment-related topics. In some cases, a CFA designation can overpower an MBA. As a result, the program is highly appraised and sought after. Completing the CFA program takes three to four years to complete.

The analysts interact with companies looking for credit as well. They will request the relevant financial statements and records. Sometimes, they may also act as a mediator for credit disputes and their resolutions.

Credit Risk Analyst Job Description – Relevant Skills, Knowledge, and Experience

Credit analysis is a distinct and peculiar area revolving around a firm's financial risk analysis. The loan financier must perform due diligence on rating the borrower's creditworthiness.

At the heart of their job, credit risk analysts assess risk. They must possess strong mathematics, risk assessment, and communication skills. They must be skilled in customer service, writing, spreadsheet accounting, and database programs. 

Although one could get a job with an associate's degree and relevant work experience, the more progressive and advanced degree one holds, the more likely they are to obtain employment.

Credit analysts should have the ability to work both independently and as part of a team. They should also know the operating systems of financial institutions, policies and procedures, and credit systems.

In addition to these skills, they should also possess strong

  • Analytical skills
  • Organizational skills
  • Problem-solving skills
  • Research skills
  • Decision-making skills

The analysis involves assessing the risks that the business will likely experience by initiating a background investigation on the customer. A credit risk analyst is responsible for several tasks, which include guiding credit risks related to lending programs involving vast amounts of money. 

Credit Risk Analyst Responsibilities

For example, a bank will hire a credit risk analyst to help assess the different firms and individuals it can offer loans to and generate a return on its cash assets. It's role includes a range of responsibilities. 

Firstly, they evaluate credit risk and review credit applications. This initial assessment involves an analysis of financial data, statements, and trends. They are tasked with monitoring risk trends among both the management and the sales workforce, ensuring the company's financial stability.

Furthermore, credit analysts play an important role in projecting sales and resolving any credit issues that may arise.

Another significant responsibility of a credit risk analyst's role is to recommend appropriate credit limits based on the company's credit policies. This involves carefully examining various factors to determine suitable limits for customers.

Additionally, they are responsible for conducting credit rating reviews for existing customers, ensuring that credit arrangements remain up-to-date and in line with the company's risk management strategies.

In addition to these core responsibilities, they maintain organized customer files containing crucial financial particulars and bank references. These records are essential for assessing customers' creditworthiness and for reference when making credit-related decisions.

Credit Risk Analyst Salary

The U.S. Bureau of Labor Statistics reports that professionals in this field earned an average salary of $73,650 in 2019.

In addition, employment is anticipated to grow 5% from 2019-2029, slightly faster than average.

Years Salary
Less than a Year Expect to earn an average total compensation of $50,012
1-4 Years An expected average pay of $58,183
5-9 Years Earn an average compensation of $60,594
10-19 Years Average total compensation of $82,424

Credit Risk Analyst Job Description — Key Responsibilities

A credit risk analyst is responsible for assessing the application of the loan applicants using a range of criteria, including the purpose of the application, credit viability, customer payment history, and customer creditworthiness.

These analysts are important for a healthy economy. Without the guidance and recommendations of credit risk analysts, banks, insurers, and companies won't be able to extend any loan for businesses, homes, cars, and occasionally employees' payrolls.

They play the role of major decision-makers in the company. They operate in many areas, including:

  • Credit
  • Heavy computer programs
  • Databases to maintain customer credit history and keep all financial data up to date.

Analysts recommend a business credit after considering certain risk factors. These factors may be stock market fluctuations, economic changes, and legislative and regulatory requirements. 

If a client struggles to meet payroll, it could suggest a decline in revenue and potential bankruptcy, which may affect the bank's assets, ratings, and reputation.

Some of the significant roles that these analysts are required to perform include:

1. Review credit limits of existing customers

The credit risk analyst will gather the relevant financial information from the client and write a report on whether the client's current financial condition allows them to meet their financial obligations. 

The company will refer to the credit risk analyst's report and decide whether to increase or decrease a customer's credit limit.

2. Assessing credit risk

A credit risk analyst reviews a client's loan application for credit, and careful dissection of the client's financial information and data determines if the client possesses both the income required to repay the loan and the inclination to do so.

The analysis involves assessing the risks that the business will likely experience by initiating a background investigation on the customer.

3. Loan Evaluation

They must cross-check and authenticate the applicant's employment status, income and remuneration, credit history, and other vital financial information to ascertain their creditworthiness and capability to repay a loan.

They ensure that applicants fill out all required loan documents, and they answer any questions applicants have about the loan process.

What is a Credit Score

Credit risk analysts are weighed down with the responsibilities of evaluating the creditworthiness of businesses and individuals and determining the line of credit. 

credit score is a number that provides the creditworthiness of an individual or business based on the analysis of their credit report. For example, lenders use a credit score to evaluate the risk of lending money to customers.

  • Lenders use a credit scoring system, or a numerical system, to measure how likely a borrower will make the payments on their borrows. It is created by allocating scores to various characteristics and traits associated with the applicant's creditworthiness. The two most widely used credit scoring systems in the United States are FICO and VantageScore. Yet FICO is the most used conventionally. 
  • Banks and other institutes use these credit scores to help estimate the risk of doing business with applicants when they apply for a new loan or credit card. 

However, a majority of lenders use FICO scores for credit decisions. Regardless of the brand, at its crux, a credit scoring model is an intricate and complicated software program. 

It assesses the credit report details and estimates the risk that you'll have to pay an account 90 days or more late in the next 24 months.

FICO Scores

A FICO score ranges from 300 to 850. Let's look into the ranges and what the scores mean to credit analysts:

  • 300–579 (Poor) – You will be considered high risk by lenders of defaulting on your loans. Lenders might not approve your loans or credit applications. It means the applicant has a substantial amount of outstanding debt.
  • 580–669 (Fair) – Many lenders may not approve your loans; those who do will considerably have higher interest rates and down payments. Applicants in this bracket have a decent amount of debt but are working to repay it.
  • 670–739 (Good) – You will be considered at a lower risk of defaulting applicants. In this group, applicants have been given lines of credit and have worked to repay them punctually.
  • 740–799 (Very Good) – Applicants in this stratum will be deemed to be a low risk for lenders. They will likely be approved for credit and get good deals on loans. Applicants in this bracket get lines of credit and efficiently repay their debts.
  • 800–850 (Excellent) – You will be regarded as a shallow risk for lenders. Banks and lending institutions will provide the best rates and favorable terms on loans and credit cards for applicants in this group. This stratum is excellent at borrowing money and repaying it quickly without accumulating excessive debt.

The higher the credit score, the more chances an applicant can expect to get in terms of a line of credit or loan and negotiate the terms and conditions in a better way. 

It includes the interest rate, amount, and frequency of installments that need to be made and the period available to make repayments.

In this way, credit risk analysts draw conclusions from the available data, qualitative and quantitative, regarding the creditworthiness of an individual or an entity and make suggestions concerning the perceived needs and potential risks.

Researched and authored by Sumedha Vasadi | LinkedIn

Reviewed and edited by Justin Prager-Shulga LinkedIn

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