Judgmental Credit Analysis
Candlefocus EditorIn terms of its methodology, judgmental credit analysis requires an individual to use their own discretion to assess the creditworthiness of a loan applicant. The analysis is based on a variety of factors including the applicant’s financial statements and other records, the current macroeconomic environment, and the applicant’s credit score. Credit analysts must be able to weigh the different elements objectively and accurately to ensure the sustainability of the borrower’s loan application.
When examining the borrower’s financial documents, the analyst generally looks at the applicant’s credit rating, debt-to-income ratio, number of open accounts, payment history, and outstanding liabilities. The analyst also takes into consideration any other factors which could potentially affect the loan, such as the applicants’ age or profession. The analyst will also look at the macroeconomic environment in which the loan is being taken out in, exploring factors such as the rate of borrowing, stability of the economy, and the interest rate environment. Collectively, these elements are used to form a comprehensive assessment of the borrower’s financial situation.
When making a decision based upon these factors, the analyst must use their own discretion as to whether or not the loan is a good decision or not. This opinion is based on the analyst’s own experience and their knowledge of the applicant’s financial documents and other information. Judgmental credit analysis helps a banker to determine the risk associated with a loan and make the most informed decision possible in regards to granting or denying the loan.
In the end, the goal of judgmental credit analysis is to create a comprehensive financial assessment of the borrower, while considering both objective and subjective elements. Doing so helps the analyst to form a realistic understanding of the borrower and the potential risk of granting them a loan. Ultimately, the analysis helps to ensure that credit decisions are made responsibly, with the best interests of both the lender and the borrower in mind.