As half of the population now holds credit scores above 900, the effectiveness of personal credit ratings is rapidly diminishing. With an increase in high credit scorers, it has become challenging to assess borrower risk based solely on credit scores, undermining the notion that higher scores guarantee better loan conditions.
According to the financial sector, as of the end of last year, 22.83 million people, or 45.1% of the population, had credit scores of 900 or higher according to Korea Credit Bureau (KCB). NICE Credit Rating reported that 23.8 million individuals, or 47.9%, fell into the same category.
This trend of rising credit scores is also reflected in the criteria for policy-based financial support. Recently introduced mid-interest living stability loans target individuals in the bottom 50% of credit scores, with cutoff points as of the end of last month set at 889 for NICE and 875 for KCB. Those scoring in the high 800s are still classified as 'low-to-medium credit borrowers.'
Moreover, even high credit scorers above 900 are facing restrictions in bank loans, leading to a 'balloon effect' where they are pushed towards secondary financial institutions. The threshold for bank loans has increased, resulting in a structure where even previously high credit borrowers are being sidelined. As of the end of last month, the average credit score of users at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reached 943.
With the growing proportion of high credit scorers, financial institutions are finding it increasingly difficult to differentiate borrower risk based solely on credit bureau scores. Consequently, credit scores are now being used as a minimum criterion for loan eligibility, while actual loan limits, interest rates, and approval decisions are increasingly determined by proprietary credit assessment models (CSS). This shift is necessitated by the need for more detailed evaluations of repayment ability and transaction history, even among those within the same 900-point range.
The benefits of lower interest rates associated with credit scores are also less pronounced than before. An analysis of data from the Korea Federation of Savings Banks revealed that among savings banks handling household credit loans exceeding 300 million won, 20% (6 out of 30) of those with scores above 900 had higher average interest rates than those in the 800s.
While credit scores have risen, individuals with insufficient financial histories, such as recent graduates, freelancers, and small business owners—often referred to as 'thin filers'—remain in a blind spot within the existing evaluation system.
Currently, credit bureau assessments are based on past financial transaction history and repayment performance. As a result, individuals without stable income or those with growth potential but lacking financial history are likely to receive low credit scores. According to the Financial Services Commission, the average credit score for thin filers is around 710 as of the end of 2024.
A financial sector official stated, "In the past, a credit score of 850 or higher was considered sufficiently high for evaluation by banks, but now 900 has become a common score range. As the standard for credit scores has risen, financial institutions are refining their proprietary CSS to enhance differentiation."
* This article has been translated by AI.
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