Credit analysis is a process used by lenders to gather vital data about applicants. This is analysed before finance is granted.
The necessity of these techniques lies in the fact that not all applicants qualify for credit due to a lack of creditworthiness or no affordability. Credit providers need a simple way of identifying the organisations or individuals that do qualify for finance.
The different types of techniques are key components of this process.
Credit analysts are tasked with doing this in the most efficient and cost-effective ways, so that they can save on time as well.
More about the different types of credit analysis techniques:
Jane is applying for a loan, so she should expect an extensive assessment of the details she provides. Her credit score will be looked into at this stage. This includes quantitative and qualitative information.
She must give clarity about use of the funds. The expert will use this to decide on the necessity. If the loan is not really required, this should be evident in the process.
During the application process, the borrower must present clear means of how the loan will be repaid, along with a clear timeline. If the cash flow assessment indicates that there is too little money coming in, then chances of the application’s approval are slim to none.
Assets must be provided as surety should the applicant become unable to repay. The process must demonstrate how able the applicant is to provide collateral. Alternatively, there should be an individual with the ability to pay the loan off if the applicant can no longer do so.
There are also ratios that are used in order to determine creditworthiness.
Credit analysis techniques must be efficient in order to save time, while also ensuring the highest levels of accuracy.