Credit rating scoring is going to be overhauled

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Credit rating scoring is going to be overhauled

Mr. Kim, 29, desperately needed money to pay for his mother’s surgery. He asked a bank to lend him 10 million won, about $9,000. Kim has a job and was perfectly able to pay back the loan in installments.

But the bank turned him down. Kim’s credit rating was damaged when he missed payments on a 10 million won student loan he took out in order to attend a university. He still owed 3 million won on that loan and his credit rating is at level 7, the fourth-lowest rank. He had to borrow from a private lender for his mother’s operation.

According to the Korea Credit Bureau, a leading rating agency that manages personal credit of some 40 million individuals in Korea, people with poor credit histories like Kim will soon be able to take out loans from banks with reasonable interest rates. The KCB has come up with a new credit evaluation system for individuals called K-Score, which will be applied starting at the end of this year.

“The current credit rating system evaluates individuals only by his or her past credit behaviors, which from an individual point of view could have been unfair,” said an official from the KCB yesterday.

“Our new evaluation system is different in that it tries to evaluate an individual’s creditworthiness by analyzing his or her consumption patterns and repaying ability, and it takes into consideration non-financial information like tax payment records.”

According to the KCB, the new system was developed over a two-year period from 2011 with the purpose of improving flexibility and transparency of the personal credit assessments. The move is also part of efforts to help fight against the country’s rising household debt, which has been made worse by people having to take out loans at high interest rates from private moneylenders.

“There are about 5.7 million individuals among our customers whose credit ratings are in the lowest ranges from seven to 10,” the official said.

Under the existing credit valuation system, it is practically impossible for them to borrow from banks with such records.

“Among them, the credit ratings of around 240,000 individuals will improve based on our new system, and 173,000 will also be able to borrow money from banks after their credit ratings will rise to level 6 or higher,” the official said.



BY LEE EUN-JOO [angie@joongang.co.kr]

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