Credit Risk, first off what is credit risk, it refers to the risk that a borrow may not repay a loan and that the lender may lose the principal of the loan or the interest associated with it. Interest payments from the borrow or issuer of a debt obligation a lenders rewards of assuming credit risk.
There are many different types of credit risks including market risk, operational risk, liquidity risk, business risk, systemic risk, etc. There are many different tips to help try to avoid credit risk, one is Debt-to-Income Ratio. This is when you are evaluating someone credit. The debt-to-income ratio can tell you a lot about the potential borrower’s financial situation.
Second one is Credit Score this is a number derived from a formula that looks at the persons credit history.
The third one is Income, in order to repay the debt, the borrower will have to have a certain amount of income.
You need to decide how much income an individual should have based on how much money he was trying to borrow.
Last but not least, Cotllateral this will help you recoup the money that you have lent if the loan goes into default.