Credit risk software helps banks and lending institutions evaluate consumer creditworthiness with built-in automated scoring methods. Businesses can also use credit risk software to evaluate the risk involved in certain capital projects and investments. There are a variety of software vendors that supply and customize applications depending upon the types of evaluations that need to be performed. Some of those software programs deal exclusively with capital portfolio management, including tools to measure a project's expected internal rate of return.
Organizations that hold consumer mortgages and automobile loans use credit risk software to make an unbiased decision about which loan applications to approve. These types of software programs combine a consumer's credit report score with data related to his job status, length of employment, judgment or lien history, income, payment defaults and the amount of requested loan funds. Instead of having several individuals try to make a subjective credit risk analysis, the software program can produce an objective "yes" or "no" decision within seconds.
Corporations use a different type of credit risk software to help them analyze the risks involved in capital projects. These software suites include functions that measure expected performance of a capital investment throughout its lifetime. They also help evaluate whether a project conforms to a corporation's standards and specifications. One of the unique features of this type of credit risk software is that it lets users simulate several different scenarios to see how the capital project will perform under various conditions.
Many of the calculations that are used to evaluate the viability of capital projects, including the internal rate of return and the yield curve analysis, are built into credit risk software programs. The tools also allow companies to be able to keep track of and manage several projects at once. Accounting activities, histories, and reports are also generated from these types of credit risk management programs.
There are some types of credit risk software programs that allow companies or individuals to manage their investment portfolios. They help keep track of different types of investments that might make up a firm's capital structure, including equity, debt, derivatives and options. Web-based functions and technology are integrated into the software applications to allow for access to current interest rates and trading information. This information can help a firm evaluate whether it is more risky to issue debt or equity to finance its operations or if it should readjust its capital structure to reflect a heavier concentration in one type of funding.