Credit Risk Assessment Calculator
Our credit risk assessment calculator is a simple tool designed to give you an idea of how risky it might be to offer someone a loan or to take on additional credit.
It uses basic financial inputs to produce an assigned “risk score” which then gets categorised as low, moderate, or high risk.
Imagine you are at a bank or planning your finances. Lenders need to decide whether someone is likely to pay back a loan.
They consider several factors such as your credit history, income, debt levels, and employment stability. Our calculator gathers similar information using seven fields:
- Credit Score: This number represents your past performance in managing credit. A higher score means you have been reliable with loans and payments.
- Annual Income: This tells the lender how much money you earn each year. A higher income generally makes it easier for you to manage loan payments.
- Total Debt: This is the sum of all your current debts. More debt can indicate a higher risk if your income isn’t enough to cover new loan payments.
- Loan Amount: The size of the loan you are seeking. Larger loans require a stronger financial backing to be safely managed.
- Loan Term: The length of time over which you plan to repay the loan. This affects how much you pay back each month and the overall risk.
- Interest Rate: The cost of borrowing money. Higher rates can mean higher payments, which might strain your finances.
- Years Employed: This indicates how stable your employment is. A longer work history suggests you have a steady income source, reducing the risk.
Our credit risk assessment calculator works by using a simple formula that combines these factors. For instance, it looks at the ratio of your debt to income and compares the loan amount with your annual income.
The credit risk assessment calculator also considers how long you have been employed, which is a sign of stability. Then, it calculates a “risk score.”
If your risk score is low, it means you are likely to manage the loan payments well, and the chance of default is low. If it is moderate or high, it signals that the lender should be cautious because there might be a higher chance of problems in repaying the loan.
Why is this Credit Risk Assessment Calculator needed?
For lenders, it provides a quick way to sift through potential borrowers and assess their financial reliability without having to dig through complex credit reports or financial histories.
This can speed up the decision-making process when approving loans. For borrowers, it offers a glimpse into how a lender might view their financial health. By understanding your risk score, you can work on improving certain areas—like reducing debt or increasing your income—before applying for a loan.