Posted in Finance, Accounting and Economics Terms, Total Reads: 376
Definition: Credit Review
A credit review refers to the periodic reviewing process conducted by creditors/lending institutions on outstanding loan customers or customers with outstanding credit lines. An alternate definition would be that credit review is a credit profile assessment of an individual or entity that is conducted on a periodic basis by credit extending institution or creditor.
Based upon the credit review findings, the creditor or lending institution makes the decision whether to continue/cease extension of credit or offer additional credit lines. Credit review is also known as ‘loan review’.
Credit review in a different sense can also refer to the services of credit repair firms who assist customers/companies in preliminary steps in financing or debt problem resolutions. Such credit reviews carried out by consumer credit repair businesses are usually the initial introductory steps in determining the plan of action for a customer embroiled in financial problems.
Generally a credit review takes the form of a follow-up monitoring of a loan/credit extension by an auditor of a bank, loan committee or regulatory agency. Credit extensions by commercial lenders and financial institutions are monitored and reviewed on a periodic basis to ensure original credit facility was extended in proper accordance and to ensure non- deterioration of the credit worthiness of the customer/borrower.
Advantages and Significance of Credit Reviews
• Determines as to whether the credit extension/loan was provided in accordance with the lender’s stated credit standards and in compliance with the loan/banking regulations. Any missing documentation/signatures on loan documents that are detected by the credit review process can be rectified by the lending officer, thereby preventing a plausible loss and deterioration in credit quality.
• Forms a vital part of the periodic checks and balances necessary in the preventative controls of a financial lending system.
Closely related processes with credit review are credit risk review and credit checking.