Credit risk is a key indicator for businesses and financial institutions because it is frequently utilized in credit evaluations and decisions.

Past due loans are one of the leading causes of SMEs closing in Mexico; it is estimated that 57 percent of businesses have this problem, which means they have debts that have not been paid on time and in the agreed-upon manner, causing problems for both the debtor and the creditor. This demonstrates the value of prioritizing credit risk assessment and implementing more efficient methods to safeguard business operations.

What is credit risk, exactly?

Credit risk refers to the possibility that a borrower would default on the loan or fail to meet the contract’s requirements. In other words, it is the risk that a financial institution takes on in the event that it does not receive the lent capital or the agreed-upon interest.

This risk margin can be minimized by verifying the borrower’s financial health before approving the loan. As a result, understanding how credit risk is calculated provides a rough estimate of the outcome of an operation, allowing it to predict if the applicant will be able to repay the debt in the long run.

Credit Risk Indicators

Credit risks are calculated based on the borrower’s ability to repay the loan, and five credit risk indicators (quantitative or qualitative) are typically used:

• Credit history: This is a borrower’s reputation or history prior to the payment of their debts.
• Payment capacity: The ability of a borrower to repay a loan.
• Capital: This represents the borrower’s commitment to the investment.
• Loan terms: Think about the interest rate, the amount of money you’re borrowing, your job security, and the money’s final destination.
• Associated guarantees: A borrower’s guarantees in the event of non-compliance with its obligations.

How is credit risk measured?

Data from accounting systems necessitates a thorough examination that takes time and money. This is where CRiskCo comes in, providing you with a powerful artificial intelligence-based API for extracting data and generating comprehensive analyses with minimal investment of resources.

Data can be evaluated in real time, and updated weekly, monthly, or quarterly basis. Businesses will have continuous access to a credible credit evaluation when they need it in this fashion.
Working with the CRiskCo API provides financial institutions with a complete risk assessment system, which is a competitive advantage that competing credit APIs do not offer. As a result, it is possible to generate automated analyzes based on different credit risk indicators and other financial ratios that allow making the right decisions.