Corporate Finance Institute

Credit Administration
A department in a bank or lending institution that is tasked with managing the entire credit
process

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What is Credit Administration?

Credit administration involves a department in a bank or lending institution that is tasked with
managing the entire credit process. Lending money is one of the core functions of a bank, and
banks generate revenue by charging a higher interest rate on loans than the interest they pay on
customer deposits.

The function of selecting and vetting borrowers is the role of the credit department of the bank,
and the department is required to ascertain the borrower’s competency to utilize the funds to
generate an income, and their ability to pay back the principal amount and interest. To learn
more, check out CFI’s Credit Analyst Certification program.
Creditor administrators are tasked with performing credit-related functions and providing
electronic solutions for credit transactions. They must work hand-in-hand with other departments
to achieve all credit objectives within a defined timeframe.
Quick Summary

 Credit administration is a department in a bank or lending institution that is tasked with

managing the entire credit process.
 Credit administrators are responsible for conducting background checks on potential
customers to determine their ability to pay back the principal and interest.
 They must be updated with the latest regulatory laws to ensure that the credit processes
comply with the latest laws in the industry.

Who is a Credit Administrator?

A creditor administrator is responsible for managing the entire credit process, including the
approval of credit to borrowers, assessment of the creditworthiness of potential customers, and
credit review of existing borrowers. They are required to develop a credit policy for the bank,
which will help manage the level of credit risk exposure. A credit policy is an important element
of the finances of a business, and it provides guidelines on the amount of credit to be given to
customers, how collections will be conducted, and the amount of bad debt losses that is
considered acceptable.

Credit administrators are required to be updated with the regulatory laws governing the credit
industry. They must also be familiar with the current industry trends to know whether or not to
approve specific types of loans and if they will be beneficial to the bank.

Credit administrators are required to prepare and submit periodic reports to senior management,
detailing the status of all loans provided to the creditors. The report may include information on
the total amount of loans approved, amount of loans unpaid, bad debt losses, and the steps that
the credit department is taking to collect payments from delinquent accounts.

Credit Policy in Credit Administration

A credit policy is a critical document for any loan company, and it provides guidelines on how
the company provides loans to customers and how it collects delayed payments on overdue
accounts. It is the backbone of the credit department, and it is used to determine which customers
are extended credit, and the payment terms for the clients whom credit’s been provided to. The
credit policy also sets the limits for outstanding accounts, as well as the procedures for dealing
with delinquent accounts.

The following are the key components of a credit policy:

1. Credit terms

The credit terms section addresses the payment terms that the company will set when extending
credit to customers. It means that when the credit department approves a loan application, they
will need to agree when the payment is due. The payment terms will also include late-payment
penalties and early-payment discounts.

2. Deposits

The deposits section provides the amount that the company will require the borrower to pay in
advance after the loan’s been extended.

3. Credit standards

The company may require potential borrowers to meet a specific financial strength in order to
qualify for credit. Companies may use credit scores such as FICO score to measure the
creditworthiness of a borrower and determine if they qualify for the credit.

4. Credit limits

The company provides the figure for the amount of credit that the company is willing to extend
to potential customers under specific circumstances. For example, the company can set a loan
limit of $1,000 for new customers, and if the customer wants to increase the loan limit to
$10,000, they must provide financial statements and payment history that proves their ability to
repay the loan, if granted.

5. Information requirements

They include the information that the lending company must receive or know about a customer
before extending the loan. It may include the credit report, credit application documents,
financial statements, years in business, duration of time at the current location, names of
guarantors, etc.
6. Collection policy

The collection policy section details the procedures that the credit department will use when
engaging in collection activities for overdue accounts. The collection progression may begin
with notification calls to collection agencies and legal action if the borrower fails to make
payments on overdue accounts.

Qualifications and Skills of a Credit Administrator

Credit administrators are required to obtain a minimum of a bachelor’s degree in finance,

economics, or accounting. Credit administration involves money, and the people assigned to the
department must be comfortable working with numbers. Previous work experience in a credit-
related field is required for most junior and senior positions.

One of the skills that credit administrators must possess is interpersonal relationship skills. The
day-to-day routine involves dealing with people, and the credit administrator must be able to
interact and communicate with other people effectively. They must also demonstrate excellent
multitasking abilities to be able to deal with multiple customers at the same time to reach the
departmental and organizational goals within given time-frames. Credit administrators should be
detail-oriented to be able to analyze customer information in detail to determine their ability to
meet credit obligations.