"'Threshold Effect Mitigation' Thorough Preparation for Credit Scoring System"... Financial Authorities Hold Inspection Meeting

Full Implementation in January Next Year
"Flexible Criteria Applied Through Detailed Review Segmentation"

[Asia Economy Reporter Kim Hyo-jin] The Financial Services Commission and the Financial Supervisory Service announced on the morning of the 30th that they held a meeting at the Seoul Government Complex in Gwanghwamun to check the preparation status by financial sector for the introduction of the credit scoring system.

The meeting was attended by officials from the FSC, the FSS, the five major commercial banks, and financial associations.

The financial authorities are currently working on transitioning the personal credit evaluation system from the current grade system (grades 1 to 10) to a scoring system (1 to 1000 points) starting January next year.

For example, what was previously classified as "below grade O" under the current grade system will be changed to "the bottom OO% of personal credit scores."

The purpose is to improve issues such as the "threshold effect," where individuals close to a higher grade within a range suffer disadvantages in loan screening despite having a relatively high credit grade.

The credit scoring system is currently being piloted in parallel with the grade system at KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Banks.

From next year, it will be expanded and applied to all financial sectors including banking, insurance, financial investment, and credit finance companies.

The financial authorities have formed a dedicated team to prepare measures such as ▲related system improvements ▲alleviation of consumer inconvenience ▲specification of credit score utilization standards.

Additionally, based on the measures prepared by the dedicated team, the financial authorities are proceeding with amendments to relevant laws.

Once the credit scoring system is implemented, more detailed screening based on it will be possible, allowing financial companies to apply more flexible standards for loan approval, extension of terms, and interest rate decisions, the financial authorities expect.

The financial authorities have decided to accelerate procedures for establishing and improving internal evaluation systems of financial companies, developing customer response manuals, and revising model regulations and standard terms and conditions.

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