Credit Assessment Software for Effective Risk Analysis

November 08, 2021 Admin
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Financial establishments like, banks, housing finance organizations, private loan providers, Government bodies etc., often are not in a position to deeply understand the risk factors while sanctioning loans and land into a situation of bankruptcy and non-recovery of loans. The establishments need to undertake thorough analysis to understand the risk they are taking. They need to know the credit score and weigh the amount of risk involved in the deal. Even if the analysis is done, there remains the question “how effective is that analysis”.  If the analysis is not effective, then the very purpose of doing all those exercises is defeated. Unless there is a software available, the analysis for risk-involvement cannot be done effectively.  As a result, there will always remain a very high chance of the credit assessment of being incorrect. In this case, going ahead with any financial dealings will be at risk which may result into a financial turbulence. To overcome this problem a software is in place for analyzing the risk factors effectively. Let us now understand what is Credit Assessment Software and how it solves such problems.


What is a Credit Assessment Software?

Banks and other financial establishments need to know the potential of customers who seek loans, their repaying capacity and various risk factors through an elaborating process called Credit Risk Management and the system supporting this whole process is called the Credit Assessment Software. It is a tool through which the past records of an entity is analyzed and arrived at a score level to decide further course of action in terms of financial deal. Credit assessments are based on the previous borrowings and its repayment trend of the customer. Non-payments and becoming defaulters in previously borrowed loans have a direct impact on future borrowings. There are Corporate Houses and big Industries who raise capitals through public shares. In this case the credibility of those houses and industries comes into scanner. CRISIL (Credit Rating Information Services India Limited) for example analyzes and provides information with regard to Credit Assessment. Credit scores are of the following kinds:


  1. High Risk Level
  2. Medium Risk Level
  3. Low Risk Level

Parties those fall under High Risk Level are in danger and should be avoided. In Medium Risk Level, borrowings can be done but needs a close monitoring. Low Risk Level borrowings are the safest to finalize deals with. Credit Assessment Software is a Software through which credit of a company or individual is checked and stability is assessed. Credit assessment defines the financial reputation of a person or company in terms of stability and creditworthiness.


Why do we need Credit Assessment Software?

The Credit rating-system offers a structured model for business loan appraisals with all required qualitative and quantitative parameters including financial viability ratios. All decision parameters including appraisal ratios are given out by this system with an extensive deviation and therefore we need a Credit Assessment Software. Apart from this, since technologies are so advance today, days are gone when things were done manually, software helps us with accuracy. Credit Assessment Software helps evaluate the credibility i.e. the capacity to repay the borrowed amount within a stipulated time, the credit score of the concerned business house and to know its financial background so that it helps in taking decision whether to go ahead with the financial deal or not. It also provides us with the necessary output with regards to the risk factors involved. It can also provide data within the shortest span of time and that too with accuracy.  We can know the financial viability of a concern business house to have a green signal for borrowings.

How Credit Assessment Software does risk analysis?

Following are the ways and means by which Credit Assessment Software does risk analysis.


  1. It uses credit risk modeling technique to determine the level of credit risk associated with extending credit to the borrower.
  2. It analyses risk based on the borrower’s financial statement and default probability.
  3. It checks whether credit risk has any negative impact on the lender by increasing the collection cost and disrupting the consistency of cash flows.
  4. It analyses  the credit score
  5. It analyses the Loan feature
  6. It checks whether there is any poor credit warning signs of borrower being defaulter.
  7. It also evaluates through EAD (Exposure At Default) whether the lender is exposed to become defaulter at any particular time.
  8. It uses the important 5Cs which are as under:
  • Capital in business and borrower’s own contribution.
  • Capacity to repay the loan
  • Credit history of the borrower
  • Conditions of the loan depending upon the economic policies.
  • Collateral Security to cover the loan amount from the borrower.

Apart from the above a Credit Assessment Software also checks the borrower’s ability to meet their debt obligations. It determines the credit worthiness of borrower by quantifying the risk of loss that the lender is exposed to. The three factors that lenders use to quantify credit risk include the Probability of Default, Loss Given Default and Exposure at Default.


A Credit Assessment Software in the case of a company also takes into consideration the financial condition of the company, its planned projects, liquidity, financial liabilities and industry risk assessment.

Advantages of using Credit Assessment Software

There are several advantages of using Credit Assessment Software, like benefits for credit managers, speed, accuracy, consistency, and reduction in bad debts. By adopting Credit Assessment Software one can prioritize his or her other essential activities by being able to complete risk assessment like a cakewalk. It also enables Credit Managers to compare their customers’ performance. One of the major USP of such a software is its ability to conduct a historical trend analysis on the click of a button. Most importantly it provides a platform to segment customers based on their financial health. One can place them in the right workflow and create the best actions for each customer. All in all increased efficiency and convenience are some of the top benefits that one can get from the Credit Assessment Software. In addition to this, credit assessment software also offers suggestions on how one can further improve their financial standings. Here are some of the other popular benefits one can draw by using a Credit Assessment Software:


  • Protection of cash flow: An efficient Credit Assessment Software ensures that cash inflows are always higher that the cash outflows.
  • Detecting, preventing and reducing bad debts thereby savings company’s interest.
  • Identifying opportunities for the company and freeing up working capitals.
  • Maintain a healthy diversification in customer portfolio so that dependency on one big customer is avoided.
  • Significant shortening of risk assessment processes and improvement thereupon.
  • Faster and more effective assessment of credit worthiness minimizing the number of risky loans granted.
  • Minimize the risk of a wrong decision or granting loans on conditions unfavorable to lenders.
  • It provides comprehensive credit policy management.

Credit Assessment Software represents a true analysis, select a potential borrower, and minimize risk factors. With the right software in place, the finance department in a company can improve their efficiency manifold by being able to better analyze risk in shorter time span and reduce debts.

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