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What is consumer credit risk?

Consumer credit risk

When lenders offer consumers loan products such as mortgages, credit cards, overdrafts and unsecured personal loans, there’s a risk that they won’t be repaid.

Consumer credit risk is also known as retail credit risk and can be offset by a lender charging a higher rate of interest.

Where have you heard about consumer credit risk?

If you’ve ever applied for a financial product at the bank, your consumer credit risk will have been assessed. Similar to the assessment criteria used for credit analysis, “five C’s” are used to assess consumer credit risk:

  • Credit history – whether you’ve borrowed in the past and made repayments on time
  • Capital – how much money you have
  • Capacity – your ability to repay a loan
  • Conditions – refers to the purpose of the loan
  • Collateral – whether you have any assets that can secure your loan, and reduce the lender’s risk

What you need to know about consumer credit risk.

If a borrower is deemed to be a high consumer credit risk, lenders can increase the rate of interest they charge for the loan to offset their risk.

There are a few simple things you can do as a borrower to reduce your consumer credit risk such as clearing credit card balances, paying bills on time and ensuring you’re registered on the electoral role.

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