How to find out a reliable borrower or not? Will he be able to pay the full amount of debt on time and in full? What to focus on? These questions are of interest to many loan experts. And it is no coincidence: on how responsibly the borrower pays his debt, their wages and profits of the organization for which they work depend. In order to objectively assess the solvency and good faith of the borrower, a borrower credit rating is used. In other words, it is a mathematically expressed assessment of its solvency.
What is a borrower credit rating?
But how do you know if a company has a sufficiently high solvency? To begin with, it’s worthwhile to understand why a borrower’s credit rating is needed and in what cases it is used. Rating is a mathematically expressed value that reflects how faithfully the borrower has previously cooperated with credit organizations.
As a rule, a rating is used to assess the creditworthiness of an organization, less often an individual. This is the final grade; it consists of several factors.
What factors make up the borrower's rating?
In order to assign a credit rating to a borrower, it is necessary to analyze several indicators. Namely:
- Examine the financial documentation of the company.
- Make an assessment of the property that is in her property.
- Calculate the liquidity of the organization.
- Calculate pprofitability of products.
- Analyze your experience with this organization.
- Make a request to the credit bureau and analyze how the company collaborated with other organizations.
After a detailed analysis, it is necessary to assign a certain status (class) to the borrower. There are three classes in total. The first is the highest. The bank has no doubts about the advisability of lending. The second class - there is no single answer to the question of the appropriateness of lending. It is necessary to check everything in more detail and come to some specific opinion. The third class - lending is not advisable, because it is accompanied by great risk.
That is, first-class borrowers will have better credit conditions (lower interest rate, more favorable terms of the contract) than second-class and third-class borrowers. And for borrowers of the second class, the terms of the contract will be more profitable than for borrowers of the third. Why so?
A bank is a commercial organization. And the main goal of her activity is profit. What does it consist of? Of the various commissions, the interest that people paid for using a loan, and so on. Accordingly, the more people take loans, the more interest they will pay. Thus, they return the money to the bank, where they are allowed to re-enter the cycle – and the bank makes a profit, which is the sum of the interest paid. The bank puts the same money in a cycle all the time in order to extract maximum profit.
So, if you are a first-class borrower, then you have a great chance to get a loan, because the bank has minimal risks. The bank is almost 100% sure that you will return all the money and bring him a profit. If there is no such confidence and you in the past have proved to be an unreliable borrower, the bank will be afraid to give you money. He may lose them if you do not pay the loan on time.In this case, the bank will spend a lot of money and time to get its money back.
In addition to the fact that the bank does not receive interest from you and loses its money, it also freezes the amount you owe on the account. He will not let her go in a circle, which means that he will not receive profit from her. That is why banks are reluctant to give money to borrowers with a dubious credit history.
Who assigns a rating in the Russian Federation?
Rating agencies operate in the Russian Federation. There are two of them: “ACRA” and “Expert RA”. They work on a national scale, have subsidiaries in our country and have passed accreditation. Rating agencies determine measure of creditworthiness of a private individual or organization. Recall that the solvency of enterprises is often evaluated.
What other methods exist for determining a borrower's credit rating?
As mentioned earlier, a credit rating is needed in order to analyze and evaluate the financial activities of an organization or individual. And on the basis of this analysis, a decision is made on the possibility of lending.
If the rating is high, then the possibility of lending is high. And vice versa.
In order to assign a rating, you need to analyze the following factors:
- Expected Revenues.
- Planned expenses.
- Total debt coverage ratio.
- Liquid value.
- The possibility or impossibility of bankruptcy.
Based on these data, the borrower is assigned a rating: from highest to unacceptable. And already based on this rating, the bank makes a decision on lending to this borrower.
Credit Rating Matrix - what is it?
According to recent changes, in order to assess the creditworthiness of a borrower, it is necessary not only to determine its rating, but also to compare the probability of default to it. This is called the matrix of changes in the credit rating of the borrower. She assesses solvency in more detail. It also allows you to really assess the risks associated with cooperation with the borrower, and to understand how beneficial it is to offer him a loan service, how profitable and appropriate it is.
Note:
In order to get a loan on favorable terms, you must:
- dFulfill obligations under other agreements in good faith;
- aboutget acquainted with all the offers of the bank before submitting an application in order to choose the most comfortable conditions;
- hcooperate with partner organizations;
- andmark a positive credit history.
It is important to understand that all credit history is stored in the credit bureau. It is in the bureau that the bank provides information on how in good faith you paid the loan. And this is where banks turn to in order to find out how a private person or organization previously worked with other banks. It should be understood that at present in our country there are several such bureaus. And it is important to pay absolutely all loans on time so as not to spoil your reputation and, if necessary, borrow money on favorable terms.
Conclusion
Recall the main points:
- toborrower rating is an important indicator for assessing the borrower's creditworthiness;
- hThe higher the rating, the better the loan conditions;
- PIn addition to the rating, an important indicator of creditworthiness is the default indicator for this rating.
Protect your credit history from the first loan! It is very important.