Credit risks get valuable advice

A woman in her 30s had a credit rating of seven out of 10, just three rungs from the bottom. Her three credit cards were maxed out and she regularly missed minimum monthly card payments. She also had a 2.5 million won ($2,221) loan from a consumer finance company that came with a sky-high interest rate. She was in financial trouble.

But recently, the woman joined a consultation program run by the private credit evaluation company Korea Credit Bureau (KCB). Finance experts studied her situation and gave advice on how to turn it around. They told her to reduce her reliance on credit cards and increase her use of a debit card. She started marking the due dates of all payments on a calendar so she wouldn’t be delinquent ever again.

As a result, the woman was able to pay off the money she borrowed from the loan shark company, and never missed any bill payments including her phone bill and health insurance payments. After a mere two months of financial stability, her credit rating jumped two rungs to five.

The program, jointly run by the KCB and the Financial Supervisory Service, ran from May through this month. The goal was to help people with low credit ratings improve the management of their finances and possibly improve their credit scores. The seven-week program chose 100 financially challenged people to assist.

According to the FSS on Thursday, out of the 71 people who finished the program, 59 percent, or 42 people, saw their credit ratings improve. They were able to cut back on credit card spending, pay off partially or in full unnecessary loans and pay bills and make insurance payments on time.

29 of the participants didn’t complete all parts of the program.

A 40 year-old man who completed the program saw his credit rating move from six to five. Because he spends 1.3 million won every month on his children’s education, the middle-aged man was unable to pay off a 16 million won loan. But after getting expert advice, he realized he was spending 3 million won annually on insurance premiums, a potential area of savings.

The program consultant advised him to cancel unnecessary insurance to focus on repaying the loan, which helped move his credit rating up after two months. “These are cases that clearly showed that one’s credit ratings can be improved simply by readjusting your spending patterns,” said an FSS official.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]