Credit Decisions, Credit Limits, And Controls

A. Other Factors Affecting Credit Decisions

A credit decision may seem as simple as whether to lend or not to lend, but it is
actually more complex than that. There are terms that a borrower must agree with as
the banks will only give credits if this terms are met and another factor affecting credit
decisons is the interest rate given on a loan as this gives insurance that a lender stays
within the risk and earnings profile approved by the board and there is also a
documentation needed wherein the bank establishes a claim on the customer's assets in
the event of default. Aside from the factors mentioned above, there are still factors that
must be considered in credit decision process like the borrower’s risk appetite, country
risk, his/her credit history, etc.
B. Credit Limits
A credit limit is given after you are approved of a loan and it varies from person
to person depending on the analysis of the creditor as there are factors that needs to
be considered to determine the appropriate credit limit. And these credit limits may
change depending on the bank's circumstances or on youractions. Credit limits serve a
variety of purposes: as a guideline for order approval, to minimize the upward spiral of
orders, and to call immediate attention to any change in a customer's purchasing or
payment behavior.
C. Operating the Controls
Credit controls is an important policy for lending company since operating this
includes using strategies that helps banks and financial institutions to recognize
delinquent customers with a poor credit report and ensure that such borrowers are
extended a line of credit. The credit policy may be restrictive, moderate or liberal.
Credit control plays an important role when it comes to maintaining lending companies’
cash flow.