Credit risk is the risk that an obligor fails to repay its debt, or that its credit worthiness may deteriorate. Credit risk is more difficult to model than market risk for several reasons. First, the lack of a liquid market makes impossible to price credit risk for a specific obligor and tenor. Second, true default probabilities can be determined by either inferring default rates based on observed historical experience of the public credit ratings, or by analyzing the default rate through a subjective credit approval process. Third, default correlations are difficult to observe or measure, making it hard to aggregate credit risk.
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Credit risk is concerned with calculation of the money value that is at stake in case the debtor fails to make payments in time.
Such an assessment of Credit Worthiness obligor-s risk is immensely valuable for those companies that are into providing loans payments to the needy ones. The rate of interest charged is a function of risk associated with the borrower. This is to say that the company distinguishes among its customers by gauging the extent to which risk is attached with them.
Stating it the other way round, credit risk is about making sure that the financial health of the customer base that is maintained by the company is sound enough not to create troubles in future when it comes to making payments.
Such documents that show credit history is useful for the customers also as people can use those as a means to prove their past records regarding credit status of theirs. It eases out the job of both lender and borrower when the issue relates to decision of whether a given person should be handed over the financial help or not.
A scorecard that sums up the factors involved in default probability of customers in terms of indicators is a useful instrument.
Such credit score profile of clients plays a significant role in helping the assessor decide for the 'financial funding' subject.
This is the actual scorecard with Credit Risk Performance Indicators and performance indicators. The performance indicators include: page_metric_keywords.
Download a trial version of Credit Risk Evaluation Balanced Scorecard or purchase a full version online.
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