Credit analysis uses a variety of metrics to evaluate an applicant's capacity, willingness, and probability of payment. This dictionary compiles the most important metrics that every credit analyst should know.
Credit risk metrics
### Probability of Default (PD)
The probability that a borrower will fail to meet their obligations within a given period (usually 12 months). Expressed as a percentage, it's the foundation of most credit scoring models.
### Loss Given Default (LGD)
The percentage of exposure lost when a borrower defaults. Depends on collateral type, credit priority position, and recovery process efficiency.
### Exposure at Default (EAD)
The total amount a borrower owes at the moment of default. Includes the outstanding balance plus any undrawn credit lines that could be utilized.
### Expected Loss (EL)
EL = PD × LGD × EAD. Represents the average loss an institution expects to suffer in its credit portfolio.
Portfolio performance metrics
### Non-Performing Loan Ratio (IMOR in Mexico)
IMOR = Past-Due Portfolio / Total Portfolio × 100. The most widely used indicator in Mexico for measuring credit portfolio quality. Mexico's banking regulator (CNBV) publishes IMOR for all regulated institutions.
### Past-Due Portfolio Coverage Ratio (ICOR)
ICOR = Preventive Reserves / Past-Due Portfolio × 100. Measures what percentage of past-due loans is covered by reserves. An ICOR above 100% indicates full coverage.
### Recovery Rate
Percentage of the defaulted amount ultimately recovered through collection processes, restructuring, or guarantee execution.
### Vintage Analysis
Analysis that groups credits by origination period to compare each generation's performance over time. Fundamental for evaluating changes in origination policies.
Individual evaluation metrics
### Debt-to-Income Ratio (DTI)
DTI = Monthly Debt Payments / Gross Monthly Income × 100. Indicates what proportion of income goes to debt payments. Should not exceed 35-40%.
### Loan-to-Value Ratio (LTV)
LTV = Credit Amount / Collateral Value × 100. Primarily used in mortgage credits. A high LTV implies greater risk for the lender.
### Debt Service Coverage Ratio (DSCR)
DSCR = Available Cash Flow / Total Debt Service. A DSCR above 1.25 is generally considered healthy. Indicates whether cash flow is sufficient to cover debt payments.
Collection metrics
### Days Sales Outstanding (DSO)
Average days a company takes to collect its accounts receivable. An increasing DSO may indicate deterioration in client portfolio quality.
### Collection Effectiveness Index (CEI)
Measures collection process effectiveness by comparing what was collected against what was outstanding. A CEI of 80% or higher is considered efficient.
### Average Days Delinquent (ADD)
ADD = DSO - Best Possible Payment Terms. Measures average delay relative to established payment conditions.
SAT-derived metrics
At CRiskCo, we've developed unique metrics derived from CFDI analysis:
These metrics feed our FinScore and provide insights that traditional bureau metrics cannot capture. Learn more about financial ratios and credit scores in our complementary guides.
Ready to go beyond traditional metrics? [Discover CRiskCo's FinScore](/solutions/credit-risk).