Credit risk mitigation: Developing the perfect strategy

Within the context of a credit union, one of the great things about technology is that it is always changing–meaning that new opportunities are always available to take advantage of. This does, however, change the type of risk an organization is exposed to–meaning that your risk mitigation strategies need to evolve with it. This isn’t necessarily a challenge, but there are several strategies that you’ll certainly want to implement to make sure you remain protected at all angles.

What is credit risk mitigation?

Credit risk mitigation refers to a set of actions aimed at reducing potential financial losses associated with the credit risk of a financial asset for your credit union. If you issue someone a credit card, for example, part of your credit risk mitigation strategy would naturally involve looking at their credit rating and proactively analyzing the information you find. You would also want to manage credit exposures and more.

Direct credit risk is when someone will not be able to meet their financial obligations. Indirect credit risk is when someone will not be able to pay back money they have already borrowed–meaning that a member wouldn’t be able to pay their credit card, for example.

 

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