Understanding Credit Risk Analytics
In simple terms credit risk refers to the potential for loss due to failure of a borrower to make a payment when it is due. The risk is mainly for the lender and it can include complete or partial loss of principal, loss of interest, and disruption of cash flow.
Data analytics has begun to make an inroad in this sector. We are seeing companies or organizations using the data at hand along with various resources and programs, to better analyse the risk of their borrowers. Often lenders will employ their own models to access the customers according to risk and then apply appropriate strategies. For example, some lenders may charge a higher price for the higher risk involving loans like unsecured loans, or for loans that are revolving like credit cards they set up a credit limit.
Credit risk analysis provides lenders with a more complete profile of the customer and an insight that enables them to anticipate customer behaviour. By making use of these analytics techniques, lenders can save their time, money, and resources to target right customers and monitor or anticipate the risk involved.
The new methods analyse customer lifestyle and behavioural data, and are highly effective in predicting the risk level, which is missing in the traditional way of analysis. With analytics techniques one can analyse the risk level for those customers with little to no credit history. This analysis is usually done by a credit risk analyst who works for banks or other companies that are involved in the money lending business. Their major responsibility is to evaluate loan applications and determine who is likely to pay their loans back or access whether it’s a good investment or not.
The basic qualification for credit analyst involves a good understanding of statistics and finance. A good or experienced credit analyst can work for a higher paying financial institution or can work independently. Those who are working independently can consult a bank or an organization involved in lending the money. They can also work with the organization to improve customer acquisition. A credit analyst can work within varied sectors like Consumer & Retail, Gaming, Healthcare, Insurance, Finance, Media & Telecom, Natural Resources, Banks, Broker and Asset Managers etc. It gives them an opportunity to interact with senior management while enabling them to also do independent research towards the overall assessment. From the smallest firm to the biggest company, everyone wants to access their borrowers before issuing a loan. Hence there are immense opportunities in this profession. A person with the right attitude and capabilities can reach great heights and this can be a most enriching career option for those wanting to pursue a career in finance.
Interested in a career in Financial Analytics? Check out Jigsaw Academy’s Financial Analytics Course.