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A credit risk manager analyzes the risk of a loan applicant defaulting on a loan. Risk managers can work for banks, a private company that issues credit, a mortgage company, or a credit card service provider. A credit card risk manager who has advanced in the field may also work for large corporations or lending institutions, and design structural models to allow people to access risk rapidly.
When a person takes any type of loan, including a credit card, car loan or mortgage, there is a risk that the person will default. Lenders, and specifically the credit risk manager, calculate the risk of default using a number of different factors. The level of risk is then used to approve or deny the loan, and to set the interest rate.
Most lenders use a FICO score or other credit score from one of the three major credit bureaus- Equifax, Experian and TransUnion- in order to calculate a person's risk. Income data, employment history, and other related factors are also used to determine the risk of default. A credit manager evaluates all of these factors in order to determine whether to extend credit, how much to extend, and at what rate it should be extended.
A FICO score is a three digit score ranging from 300 and 850. Scores above 700 are considered relatively good, and will qualify buyers for most prime loans. Lower scores may qualify borrowers for sub-prime loans only.
As FICO scores and credit scoring have become more popular, the role of a credit risk manager has changed in many industries. Traditionally, a complex process of underwriting occurred when someone applied to borrow money. This underwriting process involved looking over detailed financial records.
Underwriting has become much easier with the advent of electronic credit checks. A credit risk manager may simply be able to pull someone's credit report, and determine the risk level associated with lending that person money. In some cases, the manager will just look at the score, and look at a corresponding table to determine appropriate interest rate and credit line.
A credit risk manager who has advanced in his career may help to set up the appropriate standards that managers and loan officers will use to issue a loan. For example, a credit risk manager may create an algorithm or a spreadsheet that dictates that a person with a certain credit score and income should always be offered a specific dollar amount and interest rate. Lower level employees within the company can then use this standard to extend or deny credit, rather than asking the manager to personally review every applicant to determine risk.