You are reaching for a loan? Remember that the lender will assess the credit risk associated with granting you a loan.” If it is high, you will not be awarded additional money, so it is worth working on a positive credit history from an early age. Are you applying for extra money? Remember about credit risk assessment. It indicates the reliability of the borrower. If there is a risk that you will not repay the loan on time, you will not be granted it. So remember to pay your regular debts.
Credit risk – what is it and how to assess it?
When can we say that we have encountered a situation that poses credit risk? This happens, for example, when a specific entity receives a product or service without prior payment. The risk lies in the fact that we are not sure whether the customer will pay for the service he has previously used. Such a situation can take place not only on the credit market. The risk is posed by every online transaction we made, during which we did not receive any money from the buyer before sending the parcel.
It is worth remembering that in the financial market lenders bear greater risk than banks offering loans. Non-bank companies, in order to meet the client’s expectations, apply various types of facilities, thus to a lesser extent securing the loans granted. Higher credit risk is associated with increased commitment costs.
How can you assess the credit risk that both banks and loan companies incur? Above all, you should control the actions of your contractor. The borrower is to be a reliable person who is aware that the loan must be repaid in full. If we can see that the borrower has financial problems and can not cope with the regulation of the current debt , we can not grant him a loan. It could adversely affect its creditworthiness , and, moreover, entangle into a spiral of debt . This occurs when one loan is paid off.
Dimensions of credit risk
There are two dimensions of credit risk:
- risk of loss or solvency – it is connected with uncertainty as to the future financial condition of the borrower and includes the danger that the loan repayment resulting from the loan agreement will not be paid in full in full or only partially settled. This is called clean risk;
- collateral risk – defines the risk which results from the risk of the collateral itself adopted to limit this risk (eg damage or destruction of an uninsured collateral).
Solvency ratio – what is it?
When we reach for financing from a bank, it is good to be sure that we will not be deceived, and the cash granted to us comes from a legal source, the resources of which will not be exhausted during our lending. In the assessment of credit risk borne by the bank, the capital adequacy ratio, otherwise known as the capital adequacy ratio, will help. What is this indicator about?
The capital adequacy ratio indicates the ability to protect against risks that the bank may incur by managing its capital. There are six risk weights that a bank may incur. It is worth remembering that the higher the solvency ratio, the smaller the credit risk.
What about the risk borne by the lender when granting the loan to the customer? They are determined using the DTI (Debt to Income) indicator, i.e. debt to income. By calculating our creditworthiness, the bank takes on the current loans aggregated with the installment of the loan for which we apply. The bank that grants us the loan can not charge us with installments, the size of which will exceed the index.
Is the credit risk analysis important?
Credit risk analysis seems to be a simple activity. Nevertheless, you should devote a lot of time to it. Risk assessment related to granting a loan or loan is very important. Why? First and foremost, as borrowers, we need to know if we will be able to afford debt. It can not encumber our budget in any way. When making such an important decision, you should take into account our financial situation and how it may change over the years.
In the assessment of credit risk on the part of borrowers, it is very important to check our contractors, that is entities providing liabilities. The more we know about them, the better. How to check their honesty? It is good to get acquainted not only with the information provided on the website of a particular company, but also with the opinions of its customers. These can be found, for example, on online forums. We can also find out about the reliability of the online loan company from the certificates they receive. Remember that the risk assessment should belong to us, because we will make the final decision.
How to build creditworthiness?
If we plan a loan, we should consider our creditworthiness. What is she? Financial credibility is nothing more than an image that we create in the eyes of our borrower. In order for the picture of our credit history to be positive, and thus the BIK scoring was high, we should repay the loans on time and not delay any payments. A high score will speed up the decision to grant a loan.
It is very important to build the credit history itself. How can we do this? It is enough that we reach for a loan or a loan, as well as installment purchases, and we make payments on the set date. In this way, the lender knows that having a loan we managed to repay it. Thanks to this, we will have no problem getting a loan or a loan.