how credit analysts work
a credit analyst gathers and analyzes financial data associated with lending and credit products this includes reviewing a borrower s payment history along with liabilities earnings and assets they possess the analyst looks for indicators that the borrower might present a level of risk the data are used to recommend the approval or denial of credit and to determine whether to increase or reduce credit limits or charge additional fees 1a key component of their jobs is to interpret financial statements and use ratios to analyze the fiduciary behavior and history of a potential borrower they decide whether the borrower has adequate cash flows by comparing ratios with industry data benchmarks for example a credit analyst working at a bank may examine an agricultural company s financial statements before approving a loan for new farm equipment 1credit analysts are required to have a background in finance economics math accounting or other related field candidates with bachelor s degrees and experience are preferred although a potential employer may overlook experience if someone has a graduate degree some analysts also have advanced certification such as training offered through the national association of credit analysts employment is offered at a variety of financial institutions including banks investment companies credit unions credit rating agencies insurance companies and asset management companies analysts who work in securities commodity contracts and other areas of financial investments earn the highest salaries 2the mean annual salary for a credit analyst in 2020 the highest in the u s was 125 900 in new york state 2special considerationscredit analysts are often called credit risk analysts that s because credit analysis is a specialized area of financial risk analysis analysts evaluate the risk investments hold and determine the interest rate and credit limit or loan terms for a borrower they use their research to ensure the borrower receives an affordable loan and the lender is protected if the borrower defaults analysts may recommend a business loan or business credit after considering certain risk factors these factors may be environment oriented such as economic changes stock market fluctuations legislative changes and regulatory requirements if a business client struggles to meet payroll it could be indicative of a decline in revenue and potential bankruptcy which may affect the bank s assets ratings and reputation banks can use financial data to determine whether they want to approve certain loans by analyzing how much risk is involved in lending if a loan is approved the credit analyst monitors the borrower s performance and may recommend terminating the agreement if it becomes risky determining the level of risk in a loan or investment helps banks manage risks and generate revenue for example a credit analyst may recommend a solution for an individual who has defaulted on their credit card payments the analyst may recommend reducing their credit limit closing their account or offering them a new credit card with a lower interest rate credit analysts play a key role in the well being of the economy because credit stimulates financial activity access to credit provides consumers with additional spending power which helps improve individuals lifestyles and gives businesses temporary liquidity credit analysts and credit ratingscredit analysts may also issue credit scores a credit score is a three digit number ranging from around 200 to 850 the most common type of individual credit score is the fico score credit score generation is typically automated for individuals through algorithmic processes based on their credit payment histories spending and past bankruptcies scores for debt issuers and their instruments such as bonds are based on letter grades the highest is aaa followed by aa bbb and so on a company s debt is considered junk or below investment grade once it goes below a certain rating these investments typically carry higher yields to accommodate for the additional credit risk 3sovereign governments can also have credit scores on their bonds credit analysts who assess bonds often work at credit rating agencies such as moody s or standard poor s s p insurance companies are also rated on their credit risk and financial stability by rating agencies such as am best 