In the financial world, risk is anything that can negatively affect your investment decisions, whether that's a loss or an uncertain event. And risk isn't just something that people experience. Businesses can face risk as well. Some decisions can be much riskier than others—it all depends on a number of factors including the entity taking the risk, the type of investment decision involved, and so on. But is risk something that can actually be quantified? Enter the credit risk analyst. This is a professional who looks at all the variables involved and determines just how much risk is involved before making recommendations on how to proceed. If you've ever thought of becoming a credit risk analyst, keep reading. This article outlines some of the basics of this career path including the duties, responsibilities, qualifications, and job outlook.
- Credit risk analysts work in the lending and credit departments of investment houses, commercial and investment banking, credit card lenders, rating agencies, and other institutions.
- They use a variety of analytical techniques to evaluate the risks associated with lending to consumers and to evaluate business risks.
- Employers look for candidates who have at least an undergraduate degree.
- Although certification isn't a requirement, it can help credit risk analysts move up in the corporate world.
What Is a Credit Risk Analyst?
Credit risk analysts work in the lending and credit departments of investment companies, commercial and investment banking, credit card lenders, credit rating agencies, and other financial institutions. They evaluate the creditworthiness of new credit applicants and monitor the ongoing financial performances of existing credit customers. Analysts may work directly with consumers and business customers to collect information and conduct credit evaluations, or they may work with retail sales agents or credit officers who handle customer communication.
They use a variety of analytical techniques to evaluate the risk associated with lending money or extending credit to applicants. Analysts typically assess credit reports, payment histories, financial statements, and job histories. When evaluating a business, analysts may also study its operations, and the industry and local market in which it operates, to make determinations about its ongoing competitive outlook.
Credit risk analysts generally produce reports and recommendations based on their analytical work. For instance, they may decide the terms, credit limit, and interest rate for a borrower applying for a loan or credit card. They do so in order to give the borrower the best credit options possible while protecting the best interests of the lender should the borrower default on their obligations.
Some credit risk analysts also make the final decision about whether to approve or deny credit to unworthy applicants. In most cases, though, financial managers or loan committees are the ones who make the final determination based on a review of the analyst's work and other factors.
Most employers that look for credit risk analysts prefer job candidates with undergraduate degrees in a quantitative business discipline such as finance, accounting, economics. or a related field. However, some entry-level jobs in the field are open to candidates with associate degrees in relevant subjects and qualifying work experience in banks or other financial firms.
According to a 2015 occupational survey conducted for the U.S. Bureau of Labor Statistics (BLS), 27% of credit analysts nationwide report an associate degree as their highest educational qualification.
A bachelor's degree and substantial relevant work experience are generally required for advancement into supervisory positions and higher-level financial management positions. However, most financial firms prefer to hire managers with master's degrees in business administration, finance, or related subjects.
Having a graduate degree in finance or another related field can increase your chances of moving into a higher position.
Most credit risk analysts start in the field by working in junior analytical positions after earning their associate or undergraduate degrees. Some positions deal predominantly with consumer credit evaluation and may be suited to candidates who have associate degrees and relevant experience. Positions that focus on business credit evaluation often demand greater knowledge of finance and accounting principles and consequently require a university degree.
With several years of experience and a record of good performance, junior credit risk analysts can progress into senior positions with responsibility for more complex assignments. In some firms, senior analysts oversee a team handling analysis for a particular market, region, or industry. Top-performing analysts can rise into financial management positions overseeing analytical departments, making final credit decisions, and monitoring departmental performance.
While credit risk analysts do not require licenses or professional certifications to work in the field, the Risk Management Association's Credit Risk Certification (CRC) designation is a good way to get a leg up in the job market. The CRC designation is designed for lending and credit professionals with at least three years of qualifying experience in credit risk analysis. Consequently, this designation is considered a qualification for advancement to more senior credit analysis and financial management positions. Candidates must pass an examination covering seven areas of knowledge in the credit risk field.
Job Outlook and Salary
According to job market analysis conducted by the BLS, the employment of credit analysts in the United States is expected to grow by about 8% between 2016 and 2026, which is about average for all occupations in the economy. California had the highest employment level among the states followed by New York and Texas.
Credit risk analysts receive a base salary. The national median wage for all professionals in the field was $84,930 per year as of May 2019. The top 10% in this field earned more than $145,840 annually, while the bottom 10% earned less than $43,430 per year. The highest-paid credit analysts in the country were employed in New York and Washington, D.C.
Just like many other financial professionals, credit risk analysts may also receive a bonus and other perks in addition to their annual base salary. According to payscale.com, the average bonus for credit risk analysts was $5,000 with profit-sharing amounting to about $2,000 each year.