Judgmental Credit Analysis
What it is:
Judgmental credit analysis occurs when a banker approves or denies a
How it works/Example:
Let's say Company XYZ needs to borrow $1 million to lease a new factory. It calls John Doe at Bank ABC about getting a loan request because he doesn't want to lose any more on factory . John has conducted a judgmental credit analysis.. John just got burned on lending $500,000 to another company for factory space, so he denies Company XYZ's
Why it matters:
Lending is a complicated business, and creditworthiness is often a large part of determining whether a business or individual gets a credit scores and reporting are crucial.
However, when a already has a relationship with the borrower (let's say Company XYZ already has its accounts at Bank ABC, which generate tens of thousands of dollars a year in revenue for the bank) or when a lender wants to "get into" certain business sectors or lending areas for reasons unrelated to the borrower, may approve or deny credit even when the borrower's credit scores indicate otherwise.