An education in finance or accounting can open up the doors to an array of challenging and rewarding career options, such as the credit analyst occupation. Read on for insights into the job itself and advice on how you can enter this field with an online Bachelor of Science in Finance or an online Bachelor of Science in Accounting from UAB.
What does a credit analyst do?
When someone applies to borrow money in the form of a loan or line of credit, the lending entity will need to find out whether the applicant can repay the money they want to borrow. This is where a credit analyst, also called a credit risk analyst, enters into the process.
Credit risk analysts review credit and loan applications and examine prospective borrowers’ financial data. This helps analysts assess how likely they will be to uphold the lender’s terms and repay the borrowed money in a timely fashion. By looking at credit data, such as someone’s credit history and financial details, credit analysts determine the degree of risk that each prospective borrower poses to the lender.
In addition to evaluating the risk involved in extending credit or lending money, credit analysts also create reports that track approved borrowers and lending activities to monitor and mitigate risk. They will prepare financial statements, conduct ratio analysis to illustrate the lender’s ability to turn a profit, assess an institution’s liquidity and cash flow, and undertake similar responsibilities.
What is credit analysis used for?
For a lender such as a bank or credit card company, a borrower is an investment. It’s the responsibility of a credit analyst to advise the lender about whether the prospective borrower is a good investment or not. This is true for individual and commercial credit applicants alike.
A credit analyst’s findings help lending institutions determine whether to approve or deny applications from prospective borrowers. Additionally, insights into an applicant’s background and the level of risk they pose to the lender can determine the interest rate and other terms of the loan or line of credit.
According to the consumer credit reporting agency Experian, there are four types of credit. A credit analyst may help lenders as well as borrowers by extending any of the following types of loans or lines of credit:
- Revolving credit (including credit cards), where the consumer is given a line of credit with a borrowing limit and must make a minimum monthly payment
- Service credit, where consumers are provided with services like a month’s worth of electricity and agree to pay for what they used at the end of the month
- Installment credit (including mortgages and student loans), where a borrower is issued a fixed amount in the form of a loan, and agrees to pay off their principal balance, interest, and fees through regular installments
- Charge cards, where a retailer issues a line of credit that can be used in their store, but that cannot carry a balance month-to-month
For any credit or loan applicant, an analyst will consider factors that determine a potential borrower’s creditworthiness, including:
- Payment history
- Credit history, including the age and number of lines of credit they possess
- Credit mix, or the types of different credit a prospective borrower has
- Amount of unpaid debt
- Number of hard credit inquiries, which reveal how frequently they have asked to borrow money
These factors are typically summarized by a credit analyst in what’s called a credit rating, report, or score. The industry standard FICO credit score follows a 300- to 850-point scale. According to FICO, scores of 670 and above are considered “good,” scores of 740 and above are “very good,” and scores of 800 or higher are “exceptional.” A credit analyst would interpret a good score for credit as demonstrating that the prospective borrower poses a relatively low risk to the lender. An exceptional score would indicate that the applicant is highly dependable and creditworthy.
Where can a credit analyst work?
A credit analyst can find employment in a variety of settings. Some of the most common types of employers include:
- Investment firms
- Wealth management company
- Credit rating agencies
- Insurance brokerages
- Credit unions
- Real estate mortgage lenders
- Credit card companies
- Other financial institutions
Although credit analyst jobs are highly analytical, they can also be client-facing positions. Professionals may work with a variety of individuals and institutions, including credit associations, lenders, applicants, and active borrowers.
How much does a credit analyst make?
As with many careers in finance, credit analyst jobs often come with above-average salaries. While varying job requirements and geographical locations have a significant impact on salary estimates in the field, a credit analyst working in the U.S. can expect to see earnings similar to those of other professionals in the field of financial analysis.
The U.S. Bureau of Labor Statistics (BLS) reported that the median annual pay for all financial analysts in May 2018 was $85,660. For analysts who specialize in credit, Glassdoor placed the average salary for a credit analyst at $52,747 in April 2020 and PayScale reported $51,173 in average yearly earnings. Both sources estimate that the lowest-earning 10% make between $36,000 and $39,000 per year, and that the top earners can make around $74,000.
Highly skilled credit analysts may have opportunities for advancement into a leadership position with higher compensation, such as senior credit analyst or chief financial officer.
How can you become a credit analyst?
You can begin your path toward a credit analysis career by earning a bachelor’s degree in finance, accounting, or a related field. The online finance program or online accounting program available through UAB’s Collat School of Business can help set you on the right track by providing you with the knowledge and skills necessary to understand financial practices and lending processes.
During and after your studies, it will also be important to gain the right work experience. According to the Occupational Information Network (O*NET), most credit analyst jobs require that applicants possess a bachelor’s degree and several years of accounting or finance experience. Job training and insights will be critical to building an aspiring credit analyst’s professional skills and industry expertise so they can become better qualified to enter this specialized role. Many employers also value industry certifications in credit analysis, which can demonstrate a commitment to the field and may improve your chances for advancement.
Becoming a successful credit analyst begins with the right education. To learn more about UAB’s Collat School of Business, and our online Bachelor of Science in Finance and online Bachelor of Science in Accounting programs, connect with an enrollment advisor today.