What is credit and risk analysis?

At the time that a financial institution grants a credit or loans, it is being exposed to credit risk, which happens when the entity that made the credit loses money due to the debtor’s inability to fulfill his financial responsibilities. That is why, before placing yourself in a creditor position, it is important to know what credit and risk analysis is and what is its usefulness in making sound decisions regarding the credit field.


What is credit and risk analysis?

What is credit and risk analysis?

A credit and risk analysis is a study conducted by a financial entity or creditor before approving a credit, money loan and even making an investment. In this study it is determined if the person who is requesting the credit, that is, the debtor, is in the ability to return the money under the stipulated conditions, in addition to assessing their credit behavior.

The credit and risk analysis focuses on the probability, that is, how likely it is that the debtor will return the money received, based on the reputation of his credit history, which reflects whether he usually pays his installments on time, follow the parameters, have some other debt, etc.

Those people who have a bad credit reputation or have presented previous difficulties to pay their credits are called high-risk people , so the company or bank would be assuming a high credit risk . And as expected, no bank should have as a debtor a person who has a history of delinquent, so having a bad credit history will make your credit and risk analysis negative and the bank refuses to approve the request.


Elements of a credit and risk analysis

credit risks

To perform the credit and risk analysis, qualitative and quantitative data must be collected, among which are:

  • Destination of the credit: Although in some cases a specific explanation of the use of the credit to be granted is not required, it is important to know and have a clear vision on how much money is needed and for how long.

  • Income information: For the credit and risk analysis, it is necessary to verify if the applicant receives sufficient income to take care of a debt, in addition to the account movements he makes.

  • Guarantee: In some cases, it is required to establish a third person (guarantor or guarantor) as responsible for reimbursing the credit if the debtor does not answer for himself. The assets that the bank may seize in the event that the debtor cannot continue paying the credit are also determined.

  • Financial information: If the applicant belongs to a company or company, it is pertinent to know the financial movements that the company has, the payment of its taxes, etc.

  • Credit history: Evaluate the credit behavior of the debtor, this is consulted in the Risk Centers, such as Procredito and Datacredito, which are responsible for collecting all the information of past and present experiences of the client’s debts with other financial entities and service providers.

To carry out a credit and risk analysis it is pertinent to evaluate the client, the situation that surrounds it, and even the situation of the same company, financially speaking, in order to have a clear idea of ​​the risks that are taken when granting the most appropriate credit and conditions that avoid a delinquent situation. Therefore, always keep a good credit history!