To obtain a loan, financial institutions must assess the applicant’s credit risk so that they can be confident that their resources are in good hands and will be returned on time.

But what exactly is credit risk?

This concept refers to the possibility that a specific entity will be unable to pay its debt, resulting in an economic loss for the creditor entity.
As a result, it is a critical component in loan approval, providing financial institutions with greater security in their operations.

Indicators of credit risk

This indicator can be measured using two methods:

• Scoring: This is a quantitative method based on the potential client’s historical and current activity. It provides enough information to provide an objective rating that demonstrates the applicant’s dependability.

• Rating: this is a complementary method of scoring that contributes to the score based on the evidence provided by the history, a forecast of the applicant’s future behavior, to determine if financing is feasible and under what conditions.

How can I reduce the risk to have a secure credit?

Now that you are aware of the credit risk indicators, it is necessary to consider how to improve them and, as a result, obtain a higher rating when applying for a loan or other type of financing:

Maintain a good payment history:

Meeting financial obligations on time is critical for lowering credit risk. Otherwise, the credit score may suffer, making loan approval more difficult.

Request credits with moderation

When a financial institution evaluates a company’s debt management capacity, it may have an impact on its credit image rather than benefit it.
Requesting financing too frequently may indicate a company’s inability to generate resources or poor accounting management. Both cases raise “red flags” for credit providers.

Do not close accounts

The longer a credit history, the better it will be to measure reliability and financing behavior. For this reason, the best option is to leave the accounts active, so there is more probability of a secure credit and not of rejection of the application.

CRiskCo API: critical for credit risk assessment

To understand the risk that the applicants represent, it is best to use specialized software, such as CRiskCo’s API, which generates a credit risk analysis in just a few minutes.
This is because the tool is directly linked to any accounting system, resulting in a reliable analysis that is reflected in a financial report.