The Credit Analyst Career Path: How to Get Into Finance Through the Side Door
One of the problems with discussing credit analyst roles and the credit analyst career path is that no one agrees on what they mean.
Adding to the confusion is the presence of jobs with very similar names, such as “credit risk analyst,” “credit specialist,” and “loan officer.”
Unfortunately, they’re all somewhat different – despite the similar names.
What is a “Credit Analyst”? And What Do They Do?
Credit Analyst Definition: A credit analyst analyzes external parties, such as customers and borrowers, and uses qualitative and quantitative analysis, focusing on “downside” cases, to make lending recommendations, assign ratings, or determine credit limits and other terms.
This definition is so broad that it could refer to dozens of roles.
We’ve covered these areas in previous articles, so we’re going to focus on three specific, previously unaddressed “credit analyst” roles here:
- Commercial Banking – It’s similar to corporate banking, but you work on smaller loans for smaller/local businesses, and you’re less linked to the capital markets.
- “Normal Company” Credit Analysis – You might determine customers’ credit limits (i.e., how much in products/services they can order before submitting cash payments) and how your company’s cash flow will be affected.
- Credit Ratings Agency – You analyze companies and assign credit ratings, such as Aa3 or Ba2, based on their financial performance, risks, and outlook. Investment banks, investors, and lenders then use these ratings in their analyses.
These three categories have a lot in common:
- External Parties – Unlike corporate finance roles such as FP&A, in credit, you always analyze external parties such as customers, borrowers, or clients paying for ratings. This also means you get more interaction with these other companies.
- Analytical Work – You always focus on the downside cases, companies’ credit stats and ratios (e.g., Loan to Value, Debt / EBITDA, and EBITDA / Interest), their financial statements, and how they compare to peer companies.
- Reduced Compensation But Improved Work/Life Balance – These jobs tend to pay less than other entry-level finance roles but also offer “close to normal” workweeks (think: 40-45 hours).
On the other hand, there are quite a few differences in the exit opportunities, the recruiting process, and the day-to-day work.
Also, while the compensation is lower than in roles such as investment banking and private equity, the averages and ceilings differ based on the category.
The Credit Analyst Career Path: Day-to-Day Work
If you look at the corporate banking article, much of the day-to-day description also applies to commercial banking.
You’ll still analyze clients’ financial statements and create projections for different scenarios, write memos, monitor borrowers, and build relationships to sell them other services, such as corporate credit cards or cash management.
The difference is that the clients tend to be smaller, such as companies below $100 million or $500 million in revenue (depending on the bank’s size).
If you’re at a credit rating agency (S&P, Moody’s, or Fitch), much of the analytical work is similar, but there are a few differences:
- Macro Analysis – You often focus on broader economic trends, such as inflation or demographic changes, and aim to “connect the dots” of these trends to the companies you cover.
- Concrete Credit Ratings – After completing your analysis, you assign a specific credit rating to the company. In commercial or corporate banking, you’ll factor in these ratings, but you do not assign them yourself.
- Different “Relationship-Building” – You want clients to keep coming back to pay you for more ratings, but credit rating agencies do not offer the same array of services as corporate and commercial banking groups.
Finally, if you’re doing credit analysis at a normal company, the key differences are as follows:
- Internal Analysis – Since you’re evaluating customers, you look at not only the normal credit stats and ratios but also internal data such as A/R Aging Reports (i.e., how long it takes customers to pay invoices).
- End Goals – The aim is not to assign a credit rating or propose an interest rate on a loan the customer wants but to determine the credit line they can open and the conditions that come with it.
Let’s say that a large customer wants to open a $100K credit line with your company, so they can order up to $100K in products and receive them before paying in cash.
You analyze this customer’s credit stats and ratios and your internal data and find the following:
- Debt / EBITDA: This company might be at 4x vs. 3x for peer companies.
- EBITDA / Interest: This company is at 3x vs. 5x for peer companies.
- Days Payable Outstanding: It takes this company an average of 60 days to pay invoices vs. 30 for peer companies.
- A/R Aging: This company has paid its invoices in 45 days vs. an average of 30 days for other, similar customers.
Based on this data, your firm might propose a credit limit of $75K rather than $100K because this customer seems riskier than others in the industry.
You might also propose faster invoice payment terms or ask for a small percentage of upfront cash payments to reduce some of this risk.
How to Recruit for and Win Credit Analyst Roles
Especially on the commercial banking side, these roles are not super-competitive.
If you have at least one related internship, a decent GPA, and you know the basics of accounting and credit, you should have a good chance.
These roles are available directly out of undergrad, and you do not need special qualifications/certifications/credentials to win them.
In fact, you might even seem “over-qualified” with something like an MBA or CFA.
Credit rating agency roles are more competitive and usually require more technical knowledge and related internships/other experience.
You’re also more likely to get questions about evaluating specific companies and issuances and how you might approach the process (“mini-case studies”).
You can still win these roles out of undergraduate; they’re much less competitive than investment banking roles but more competitive than commercial banking ones.
Finally, credit analysis roles at normal companies are rarely advertised in the same way that corporate finance rotational roles are.
Candidates tend to have experience in corporate finance at the company or in credit analysis at a bank, and it’s more common to see MBA or Master’s degrees.
That said, interviews are still not super-technical, and you can expect similar questions.
Potentially, you can win these roles directly out of university, but you’ll need to do some networking because companies don’t necessarily post online applications.
The Credit Analyst Career Path
On the commercial banking side, there are two main options in the credit analyst career path:
- Stay in credit, keep analyzing new issuances and monitoring the portfolio, and advance up the ladder to become a “Portfolio Manager.”
- Move to the sales side and aim to become a “Loan Officer,” “Lender,” or “Relationship Manager” (the names vary by firm).
It might take ~8-10 years to reach the top of the hierarchy, depending on the role you’re targeting (sales takes longer because you need to build more external relationships).
As a Portfolio Manager, you make the final decisions on new and existing loans so that the Lenders can spend their time winning deals.
That translates into quarterly/monthly covenant testing, document collection, and flagging potential issues to the risk team and the Lenders.
Lending jobs (sales roles) tend to pay more but are also more stressful due to the sales targets; also, not everyone can sell effectively, so some credit analysts will not reach this level.
Banks “poach” Lenders from other banks all the time if they want to target a certain industry or market segment in which the Lender has many relationships.
At credit rating agencies, the career path and hierarchy are more like those in other finance roles: Analyst, Associate, Director, Analytical Manager, and Managing Director.
The Analysts do the work, the Associates and Directors coordinate and manage those below them and interface with clients, and the MDs win new clients and assignments.
There isn’t quite the same split between “sales” and “credit” roles, and advancing to the top can be challenging because hardly any senior staff leave the role willingly.
Finally, at normal companies, the credit analyst career path is similar to the corporate finance career path: Analyst, Senior Analyst, Manager, and eventually a VP or even the CFO.
As with other CF roles, advancement can be very, very slow because many people at these large firms plan to stay there forever and grind it out over several decades.
The Credit Analyst Career Path: Exit Opportunities
The exit opportunities are the main advantage of the credit analyst career path – at least if you leave the job relatively quickly (within 1-2 years of starting).
I’d summarize the exit opportunities by area as follows:
- Commercial Banking: The most obvious exit is corporate banking; credit-related groups in IB, such as DCM, might also be possible. You could also move to a credit rating agency or a similar role at a normal company. Direct exits to buy-side roles such as direct lending, mezzanine, or credit hedge funds are unlikely, as you normally need IB or other capital markets experience first.
- Credit Rating Agency: You have similar options, but you also have a better shot at direct exits into the buy-side roles mentioned above and credit research – depending on the companies and products you covered. You also have a higher chance of getting into investment banking or groups like structured finance if you have matching experience.
- Normal Company: It’s most common to move around to other areas in corporate finance, such as FP&A, Accounting, or Treasury. But it is also possible to move to a credit rating agency or corporate/investment banking. Like commercial banking, direct exits into credit-related buy-side roles are unlikely unless you’ve had deal or capital markets experience before this.
The bottom line is that you should not accept a credit analyst role with the expectation that you’ll be able to move into private credit at Ares or Blackstone.
You may get there eventually, but you’ll have to move through other roles, such as corporate or investment banking, to do so.
Credit Analyst Salaries and Bonuses
Unfortunately, it’s very difficult to find hard data on compensation, partially because of how “credit analyst” could refer to dozens of different roles.
Therefore, I’ll give very broad ranges here (data as of 2022):
- Commercial Banking Credit Analyst: Expect to start at $60 – 80K in total compensation (bonuses are 5-10% of base), move up to $100K+ over several years (with steadily increasing bonuses), and top out in the $150 – $200K range within ~10 years on the “credit” path. If you move to the sales side, some Relationship Managers can earn $300K+ or even above $400K for top performers. But the average is probably in the $200 – $300K range. To go above these levels, you’ll have to move into more of an executive role.
- Rating Agency Credit Analyst: The compensation here seems to be closer to the corporate banking numbers, i.e., expect to start at $100K+ all-in and move up to around $500K as an MD. “Associates” at credit rating agencies might earn around what “Analysts” in IB do, with the main difference being much lower bonuses.
- Normal Company Credit Analyst: Expect something similar to the “commercial banking credit analyst” progression above, with pay starting at $60 – $80K and topping out at around $200K+ until you reach the VP or executive level.
Compensation is lower along the credit analyst career path because the fees are lower, and in the case of normal companies, it’s not even a revenue-generating function.
Clients pay far less for credit ratings and opinions than they do for M&A deals or high-yield bonds, and the fee percentage on commercial loans is lower than on corporate banking products.
Also, banks have fewer products to “upsell” to these smaller companies, so it’s more difficult to justify high compensation.
The Credit Analyst Career Path: Pros and Cons
The best parts of credit analyst roles are:
- Winning entry-level roles is much less competitive than in other areas of finance, especially if you started late, you’re older, or you went to a non-target university.
- It’s a fairly stable career, at least if you stay on the “portfolio management” side rather than sales in commercial banking.
- It offers great hours and work/life balance compared with almost every other finance role discussed on this site.
- At the top levels, the pay can be quite good when adjusted for the reduced hours and stress.
- You learn valuable skills and gain access to many exit opportunities if you leave within the first few years.
And the main downsides are:
- The work can be somewhat boring/repetitive, especially if you focus on monitoring existing clients.
- The pay for entry-level roles is quite bad next to investment banking or even corporate banking. And sure, you can “adjust for the reduced hours” – but absolute numbers also matter, especially in high-cost areas.
- There is some risk of automation, as quite a few “monitoring” tasks do not require constant human involvement.
- And the pay ceiling is far lower than in fields like IB, PE, mezzanine, direct lending, or even commercial real estate.
In short, the credit analyst career path is great at the beginning and the end but not so great in the middle. It’s best if:
- You’re in it for the long haul, and you want to work your way up to earning $300K+ eventually while working 40 hours per week.
- You missed IB/PE/HF recruiting in university or otherwise did not receive offers, and you want to get into one of those eventually via lateral hiring rather than paying for an expensive MBA.
The biggest problem with this career is that if you get tired or bored in the middle – say, Year 5 or 6 – and you want to earn more money or do something different, you don’t have that many options (outside the MBA route).
So, I think it’s risky to spend your “peak earning years” here unless you’re certain you can make it to the top and stay there for a long time.
But as long as you understand that it’s more about the start and finish and less about the journey, the credit analyst career path might be a very appealing side door into finance.
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