Businesses of all sizes often find themselves in need of capital to fulfill a financial obligation or take advantage of a business opportunity. For instance, perhaps a company has plans for expansion but requires cash flow to purchase the equipment and/or facilities they’ll need. Alternatively, a business may have an abundance of orders for their product, but not enough inventory to satisfy them.
In cases like these, companies typically turn to a bank to secure a business loan, which usually takes the form of a lump sum of cash or a line of credit. Business loans are quite common; according to Fundera, in 2022, 43% of small businesses applied for loans, with the average amount of a loan of approximately $633,000.
Individual consumers also take out loans, in the form of personal loans. These can be used for anything from home improvement projects to debt consolidation. TransUnion reported that the average amount for new unsecured personal loans was $8,085 in the second quarter of 2022.
However, business and personal loans aren’t approved without a thorough review process, which is where credit analysts come into play. What does a credit analyst do? They work on behalf of a bank or lending institution to determine the risk of a loan by reviewing the borrower’s credit profile.
Aspiring credit analysts should strongly consider pursuing an advanced education to prepare them for the role. Earning a graduate degree in business, economics or accountancy can be an excellent step on the path to becoming a credit analyst.
Credit Analyst Job Description and Responsibilities
Credit analysts are responsible for assessing the risk of business and personal loans. They rely on several pieces of financial information to assess a borrower’s reliability. This information includes earnings, debts, existing lines of credit, payment history, financial statements, and credit history. The current economic climate can also factor into their assessment.
Using this information, credit analysts determine the level of risk a potential borrower poses using ratios and mathematical formulas that illustrate fiduciary behavior. Credit analysts also factor in special considerations and outside factors that can affect a borrower or the industry a business operates in. Some examples include changes to existing regulations or new regulatory requirements, fluctuations in the stock market, and other changes in the economy as a whole.
It’s important to note that business loans are handled differently than personal loans. Business loans have strict qualification requirements for both the business and the business owner and the loan repayment terms are usually much longer. Further, business loans require some form of collateral or guarantee from the business. By comparison, personal loans typically don’t require collateral, and have more lenient qualification requirements and shorter repayment terms. Since the average personal loan amount is relatively small compared to the average business loan, credit analysts generally have a more comprehensive due diligence process for businesses.
Once a credit analyst determines that a potential borrower will realistically be able to meet the financial obligation of a loan, they offer the borrower specific terms. The main variables that shape a loan are the amount, interest rate, loan type and repayment schedule. Ideally, a credit analyst can offer a relatively low-risk loan that satisfies the borrower’s needs, and that the borrower won’t default on.
What a credit analyst does involves a complex mix of mathematics, research and assessment. On any given day, a credit analyst may perform any of the following duties:
- Analyze credit histories and financial statements
- Perform credit checks
- Provide one-on-one consultation about credit
- Review loan applications
- Conduct risk assessments
- Structure and negotiate loan terms
- Monitor economic and industry trends
Although handling business and personal loan proceedings is the primary function of a credit analyst, they may also work with individuals in an advisory capacity. For instance, if someone were to default on their credit card payments, they could enlist the services of a credit analyst to provide options on what to do next. Depending on the scenario, a credit analyst may suggest closing a particular account, reducing its credit limit, or opening a new line of credit at a lower interest rate.
Considering the wide array of lending institutions, credit analysts can work in a variety of environments. Most credit analysts work in banks, credit unions, asset management companies, insurance companies, credit rating agencies, investment companies and other financial institutions.
How to Become a Credit Analyst
For those who are interested in becoming a credit analyst, there are some key educational benchmarks they need to meet, along with optional ones that can help make an applicant stand out to potential employers. Additionally, it benefits credit analysts to confirm their skills and knowledge base via industry certification.
Aspiring credit analysts should complete the following steps:
- Earn a bachelor’s degree in accounting, finance or a related field.
- Gain industry experience via an internship or entry-level work.
- Earn a master’s degree in accounting, economics, finance or a related field. (While this step is often optional, depending on the preferences of the employer, holding an advanced degree can help credit analysts move into senior positions.)
- Earn relevant industry certification, such as the credit business associate (CBA) certification offered through the National Association of Credit Management or the credit risk certification (CRC) offered through the Risk Management Association. (Some employers require certification, while others do not.)
In addition to getting the right education and relevant certification, credit analysts should also develop a range of skills and competencies to excel in the role, including:
- Exceptional attention to detail
- Proficiency in mathematics and finance
- Ability to multitask
- Significant industry knowledge
- Proficiency in working with risk assessment tools and software, such as Fiscal and Datarails
- Exceptional written and verbal communication skills
- Organizational skills
- Ethical behavior and conduct
Credit Analyst Salary and Job Outlook
Considering the number of businesses that routinely file for loans, the future looks promising for credit analysts. According to the U.S. Bureau of Labor Statistics (BLS), employment of financial analysts (a similar role) is projected to grow by 9% between 2021 and 2031, which is faster than the projected national average growth rate of 5% for all occupations.
The BLS reported that the median annual credit analyst salary was $77,440 in 2021. Keep in mind that an individual’s salary can be affected by their level of education, experience, region, and employer, among other factors.
Pursue a Rewarding Career as a Credit Analyst
Credit analysts serve an essential function in the business world, determining the creditworthiness of potential borrowers. They also play a key role in boosting the economy, considering that credit promotes financial activity. The ability to secure a loan empowers individuals to spend on the things they want while providing businesses the money they need to secure resources and expand their operations.
The education, skill set, and industry knowledge of credit analyst makes them uniquely qualified to assess risk and structure loans that are beneficial for both the borrower and the lender. These win-win scenarios allow borrowers to achieve their goals while providing a revenue stream for the financial institution the credit analyst represents.
However, what a credit analyst does requires the right education and experience to succeed. Aspiring credit analysts should consider enrolling in the online Master of Accountancy (MAcc) program offered by the University of Nevada, Reno. The program includes several courses that are relevant for a career as a credit analyst, including:
- Accounting Research
- Taxation of Corporations
- Business Analysis Methods
- Ethics and Professional Responsibility in Accounting
Find out how the University of Nevada, Reno can help you pursue your professional goals.
Accounting Trends to Look for in 2022
Corporate Taxation and the Value of Cash Holdings
How to Prepare for the CPA Exam
Betterteam, Credit Analyst Job Description
Corporate Finance Institute, “Credit Analyst Role”
Forbes Advisor, “Business Vs. Personal Loan: Everything You Need To Know”
Fundera by NerdWallet, “Small Business Lending Statistics and Trends”
Investopedia, “Credit: What It Is and How It Works”
Investopedia, “Credit Analyst Definition, Work, Required Skills, Job Prospects”
National Association of Credit Management, Credit Business Associate
Risk Management Association, Credit Risk Certification (CRC)
TransUnion, “Number of Consumers With Credit Cards and Personal Loans Reached Record Highs in Q2 2022”
U.S. Bureau of Labor Statistics, Financial Analysts
U.S. Bureau of Labor Statistics, Occupational Employment and Wage Statistics, Credit Analysts