About Credit Analysts
Credit analysts determine the creditworthiness of either companies or individuals looking to borrow money. Most credit analysts work for commercial banks, but many others work for bond rating agencies like Standard and Poor's, Moody's and Fitch. These analysts research how well that potential borrowers will be able to pay back money lent to them, determining how risky an investment they will be to their organization.
Types
Credit analysts working for retail banks typically work closely with loan officers to determine what interest rates and fees to charge potential borrowers--both individuals and small businesses. They will use metrics like credit ratings along with an assessment of the financial data provided to them with reference to broader-based statistical information to determine price a loan. Those working for the major corporate rating companies are primarily interested in rating corporate and foreign government bonds, performing constant, high-intensity market research to help guide investment dollars by pricing corporate debt intelligently.
Function
Credit analysis is not an exact science. In retail banking, it can take more than 10 years of experience or an advanced business degree to qualify an individual for a position as a credit analyst or senior credit analyst. Analysts must manage the risk of the lending institution carefully. Some experience or education in accounting can be very helpful, particularly when evaluating small business clients. Corporate debt analysts often benefit from broader business experience. Most analysts specialize in particular sectors of business like transportation, media or technology.
Effects
Credit analysts are well-compensated, although they do not receive shockingly high salaries for the level of education and experience expected of them. Retail banking analysts can expect to bring home approximately $40,000 to $60,000 depending on their employer, while those working for rating agencies can often make more than $100,000 per year. Of course, to become a credit analyst in the first place, an individual must first create and then painstakingly maintain a good reputation.
Considerations
All credit analysts can be expected to make mistakes at some time or another during their career. Any investment carries with it a degree of risk, and that is understood completely by lending institutions. Loans and bonds are priced to take into account the possibility of default. Protecting lenders and investors from a certain inevitable level of failure is part of the credit analyst's job description. Oracle-like abilities to determine creditworthiness are not possible or necessary, but any analyst must be able to demonstrate clearly why they make their decisions and be as honest and open as possible about major potential risks.
Benefits
Credit analysts enjoy relatively strong job security in a highly challenging and exciting field. Successful analysts that show management potential often find that the experience proves to be a valuable badge of honor in the finance industry. Successful credit analysts need to be able to constantly research the market and change their evaluative methodology as time goes on. As experienced analysts have been in a position potentially thousands of times to determine whether they think a business will succeed or falter--and then watch how their prediction fares--it puts them in an excellent position to pursue the upper echelons of corporate management.
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