Credit process

The credit process is the internal process in a bank or company where the lender or creditor assesses whether a borrower or borrower should and can be granted credits and loans.

There are no legal requirements, rules or formats for what a credit process should contain - it's basically up to the individual company or lender to determine.

Professional lenders, such as banks, typically have an extensive credit process with a number of formalities and points to go through before credit or loans are granted.

Smaller lenders and especially small creditors often have simpler and less advanced credit processes, typically consisting of a single credit check against the RKI or Debtor Register.

Why have credit processes?

Every day, banks and companies provide loans and credits to individuals and businesses that need financing for a shorter or longer period of time - whether it's for goods, assets or something else entirely.

In other words, loans, credits and financing are a natural part of running a business and being a consumer in Denmark. For example, very few Danes do not finance their car or real estate.

The purpose of the credit process is to ensure that the right customers get credit and that customers who should not get credit are not granted it.

The outcome of any credit process is to determine whether the customer should have credit or not.

Why give credit?

Many companies and banks earn their income by providing credit and loans to their customers. Therefore, there can be very obvious reasons to offer credit to customers.

Typically, lenders make money from the costs associated with the credit or loan - such as set-up fees, interest rates and the like. In addition, some companies use credit as a competitive parameter.

By offering credit, a business can allow the customer to defer payment for an item - and perhaps even have time to process and resell the item before the supplier has to be paid.

But all credit carries a risk of non-payment. That's why it's important to have an efficient credit process to minimize the risk of losses and bad payers.

What does a credit process include?

A good credit process should be thorough enough to give an indication of whether a credit or loan will be repaid.

The credit process should identify markers that can show whether a customer has the ability to pay back their credit - or not.

As mentioned, there are no fixed rules or requirements for a credit process. It is therefore up to the companies themselves to define what information they want to collect to form a satisfactory picture of a potential borrower or debtor.