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  • Writer's pictureAllison Church

Why Credit Analysts Are Crucial To Debt Management

Updated: Dec 28, 2022

The US debt collection industry was affected by the pandemic, but generally in a good way. The $15 billion industry saw consumers cutting down spending and using additional cash from stimulus checks or enhanced unemployment benefits to settle their debts. However, trends also reveal a number of challenges for debt management, such as increased compliance pressures and a shortage of skilled collectors.

One way to manage and address debt to ensure timely payments is through the help of skilled credit analysts, who can assess credit risk among consumer and corporate borrowers to see if they can make payments on time. In this article, we’ll discuss the role of credit analysts and how they can work with businesses to minimize potential defaults.

What Is A Credit Analyst?

Credit analysts are financial professionals who check the creditworthiness of securities, individuals, or companies to determine how likely a borrower can repay their debts. They do this by reviewing a debtor’s financial and credit history, to see if their financial health and economic conditions are favorable for repayments. Credit analysts would then determine the level of risk that any lender or credit-granting institution will not recoup the fund loaned. From there, they will determine if a loan or line of credit will be granted, as well as the terms and interest rate of the loan.

A credit analyst would need an educational background in finance or related fields. A bachelor’s degree in accounting is often the most fitting for aspiring credit analysts, as they undergo core business courses like economics, statistics, financial reporting, auditing, and more. Accounting professionals are also in high demand, with a 7% industry growth projected from 2020 to 2030, particularly as degree programs have become more flexible and accessible online. A high level of education is essential because risk assessments require an array of knowledge and skills, such as managing spreadsheets, using computer programs, and communicating findings clearly.

Credit analysts should also be abreast of techniques to utilize emerging technologies, such as data science. Upskilling with data science training is top of mind for many credit analysts, as access to Big Data allows them to better extract relevant insights and solve problems. For instance, they can use available data generated from statistical analysis and machine learning to identify patterns among debtor types. Finally, they should be familiar with sector-specific concerns among commercial lenders, because a wide range of factors can influence risk levels.

How Do Credit Analysts Approach Debt Management?

Around 36% of Americans in lower income households were worried about the amount of debt they had, even before the start of the pandemic. Credit is what allows individuals to move forward with their goals, and propels organizations to grow over time. However, allowing consumers or corporations to borrow poses inevitable risks — which is why credit analysts minimize this danger by evaluating new borrowers.

For individuals, analysts look at credit payment histories, spending habits, and past bankruptcies. They may also dig into purchase activities, savings information, and debt repayment history. As an example, a credit analyst may take a look at medical debts on credit reports. Although these are given less weight than other types of collections, not all creditors use updated scoring models, so defaulted medical bills may be considered by a credit analyst. For corporations, analysts will evaluate their audited annual reports, financial statements, management accounts, and market data.

From here, credit analysts issue credit scores to establish appropriate borrowing limits and interest rates. This benefits borrowers because credit analysts ensure they receive an affordable loan. Moreover, lenders are protected in case any borrowers default on their debts. Debt collection issues often arise when credit decisions have been more lenient than what they should have been for a particular customer, so examining new customers’ financial capacities helps reduce collections later on.

Disclaimer: Any and all information is not intended to be, nor is it, legal advice. Please consult your attorney for information concerning allowable rates of interest.

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