Credit Analyst

What Is a Credit Analyst?

The term credit analyst refers to a financial professional who assesses the creditworthiness of securities, individuals, or companies. Credit analysts determine the likelihood that a borrower can repay their financial obligations by reviewing their financial and credit history and determining whether the state of the subject's financial health and the economic conditions are favorable to repayment.

These professionals generally have an academic background in finance, accounting, or a related field. Credit analysts can find work in different financial institutions.

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.

A 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.

Credit 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.

$86,170

The mean annual salary for a credit analyst in 2020. The highest in the U.S. was $125,900 in New York State.

Special Considerations

Credit 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 Ratings

Credit 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.

Sovereign 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.

What Skills Do You Need to Be a Credit Analyst?

A credit analyst should have accounting skills, such as the ability to create and analyze financial statements and ledgers. Many credit analysts will have skills in risk analysis, mathematics, statistics, computing, and quantitative analysis. Credit analysts should be good at problem-solving, have attention to detail, and have the ability to research and document their findings. They should be able to understand and apply the terms used in finance, banking, and business.

How Do I Become a Credit Analyst?

To become a credit analyst you will usually be required to have a minimum of a bachelor's degree in finance, accounting, or a related field. A potential employer may look to see if you have completed courses in statistics, economics, financial statement analysis, and risk assessment. They may also require some previous on-the-job experience in accounting, banking, or finance.

Industry certifications can also help you land a job as a credit analyst or advance your career in the field. Common certifications for credit analysts include credit risk certification (CRC), credit business associate (CBA), credit business fellow (CBF), professional certificate in credit, and certified credit executive (CCE). Some credit analysts have chartered financial analyst (CFA) or certified risk analyst (CRA) certifications.

Is a Credit Analyst a Good Job?

Yes, a credit analyst can be a good job if you have an interest in accounting or finance, along with a desire to help companies and consumers make decisions regarding the extension of credit and the reduction of financial risk. According to the U.S. Bureau of Labor Statistics (BLS), the estimated wage range for credit analysts in 2020 was $44,250 to $146,690. The mean annual wage for credit analysts was $86,170.

The top-paying industries for credit analysts are monetary authorities (central banks); securities, commodities, and financial investment companies; insurance carriers; and business support firms. The states with the highest employment levels for credit analysts are California, New York, Texas, Florida, and Illinois.