A credit risk analyst, also known as a credit risk manager or credit analyst, advises his or her employer about whether to give a loan. To do this, the analyst studies all the information available on current and past loans and creates a system for deciding how likely a person or organization is to default on a loan. He or she also is in charge of keeping that system up to date. He or she can work with private or commercial loans.
Creating a system for credit analysis can be rather complicated, and the methods vary somewhat from group to group. In general, a credit risk analyst gathers all the information available on the loans that his employer has given so far. Then he or she uses statistics to find out the probability of defaulting on the loan. Whenever someone applies for a loan, the analyst inputs the applicant’s information into the system to see the probability of default. Although a credit analysis system needs to be set up only once, it does need to be updated constantly with information from every loan that is given.
When an applicant has a higher probability of default, a credit risk analyst often advises risk-based pricing. Risk-based pricing is the idea that banks should charge higher interest to organizations or people with a higher credit risk. The banks can also lower the credit limit or overdraft limit for customers who have poor scores. The less risk involved, the more an institution will loan and at 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 loan to a varied group of applicants so that their money isn’t tied to one business sector. An analyst must keep track of what loans have been given in order to keep them diverse.
In many ways, credit analysis on private loans, often called consumer credit risk, is easier than on commercial loans. The private loans category includes mortgages, credit cards, overdrafts and unsecured personal loans of all kinds. In these, the analyst simply gathers information about the applicant’s financial history, inputs it into the system that the business uses, then gives 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 be successful. This can be particularly difficult when considering loans for entrepreneurs, because there often is no information available for a new product. When working with commercial loans, an analyst frequently must visit the business or organization requesting a loan in order to gather information.
To work in credit risk analysis, one must get a four-year bachelor’s degree in business, finance or similar area. Many also get masters degrees, usually in business administration, because the added degree often results in better pay. In addition, most credit risk analysts will go through extensive training whenever they have a new employer.