Credit amount
The concept of "credit amount" is central to both creditor and debtor when granting loans or credit.
The credit amount is the amount the borrower receives after any costs and down payments have been deducted.
An example could be a future homeowner who needs DKK 1,000,000 for a home. The bank will often require a down payment of 20%, which means that the credit amount is DKK 800,000 - the amount the customer will actually receive.
Credit amount is an important parameter
The amount of credit is a crucial parameter in all credit granting. The size of the credit amount is often one of the factors that determines whether the customer can take out credit or debt. The lower the credit amount, the more likely it is that more people can take out the loan.
Therefore, the amount of credit is also an important management tool for any creditor. As a general rule, customers with high incomes and healthy finances can be offered a larger amount of credit than customers with low incomes and/or poor finances.
Thus, the credit amount is an important parameter in the overall credit terms that a customer can be offered.
Credit amount in connection with credit relationships
A credit amount for an overdraft facility is also called the credit size and refers to how large the credit is.
The credit amount, or credit size, along with the credit period, is one of the most important parameters in a credit relationship.
A creditor or lender will therefore often work with both the credit amount and the credit term, which are the factors a debtor is faced with when applying for credit.
The credit amount and credit size will typically be determined based on the company's overall credit policy, which should reflect the company's rules, requirements and wishes to provide credit.
The inherent risk of credit
Every credit involves credit risk - the risk that the debtor will not be able to pay their outstanding debt, either in full or in part.
This is a risk that every lender must be prepared for, as losses on debtors, loans and credits are almost unavoidable.
Lenders and creditors should therefore work intensively to minimize losses, for example by setting credit terms, credit ratings, monitoring, etc.
Effective management of individual credits and debts, including ongoing follow-up on the size and duration of credits, can also help reduce risk.
By continually adjusting the credit amount and credit period to suit the debtor's financial circumstances, you can help minimize risk.
Get help with determining credit size
Determining the right credit size can be difficult, but luckily there are several great tools to help you.
At Collectia, we have developed Qatchr, an online service that makes it easy to run credit checks on individuals and businesses.
Qatchr can also help you determine credit sizes and make recommendations on how much credit you should provide to your customers.
Read more about Qatchr here.
