Transition to Credit Scoring System... Fewer Mortgage Loan Rejections for Those Who Fail to Pass Grade Threshold (Comprehensive)

Starting Next Year, Credit Ratings 1-10 Will Convert to a 1-1000 Point Credit Scoring System
Housing Finance Corporation Announces Revision of Operational Standards Reflecting Credit Scoring System

[Asia Economy Reporter Park Sun-mi] The credit rating system, which is currently divided into 1 to 10 grades, will be fully converted to a credit scoring system ranging from 1 to 1000 points starting next year. In line with this, the Korea Housing Finance Corporation has also begun the revision process in earnest. With the credit rating system, which caused the side effect of the "threshold effect," changing to a scoring system, it is expected that those who were unfairly denied mortgage loans will be able to receive relief.

According to the financial sector on the 13th, the Korea Housing Finance Corporation has announced plans to revise the operational standards for the acquisition of mortgage loans by financial institutions in accordance with the full introduction of the credit scoring system next year and has begun collecting opinions.

For basic qualified loans, when conducting credit evaluations, the debtor requirements currently apply credit ratings (CB) from 1 to 9 grades from NICE Credit Information or Korea Credit Bureau as of the loan application date. The Korea Housing Finance Corporation plans to apply scores ranging from 1000 to 445 points instead of grades. The operational standards for the "Bogeumjari Loan," a long-term fixed-rate, installment-type mortgage loan, which previously only accepted cases with CB ratings from 1 to 9, will also be changed to allow handling only if the credit evaluation is conducted and the credit score falls within separately defined criteria under the scoring system.

Source: NICE Credit Information Service

Partial Relief for Loan Rejections After Conversion to Scoring System
"Double-digit (number of people) relief expected"

A representative from the Korea Housing Finance Corporation stated, "First, we will revise the operational standards to apply scores corresponding to each credit grade, then adjust the score ranges considering the reflection status in the banking sector." They added, "As a result, about 3% of those rejected for mortgage loans, including Bogeumjari Loans, are expected to be relieved. Under the current system, dozens of loans that failed to pass the threshold due to a grade 10 rating will become possible."

The change from a grade-based to a score-based personal credit evaluation system aims to resolve the side effect where loan approval was determined by grade divisions despite minimal differences in credit scores. Based on credit scores, financial institutions can conduct more detailed assessments, enabling flexible loan approvals, extensions, and application of interest rate determination criteria.

[Image source=Yonhap News]

Personal credit evaluation companies are currently updating their credit evaluation models to ensure smooth adoption of the credit scoring system across all financial sectors starting next year. NICE Credit Information is preparing to exclude grade provision to financial institutions and provide only credit scores from next year, updating its credit evaluation model from RK0400 to RK0600.

The new model features a reduced negative weighting on factors such as delinquency information, and to minimize confusion in the financial sector, it will allow financial institutions that are ready to apply the new model first. Korea Credit Bureau is also known to be discontinuing grade provision from next year and upgrading its credit evaluation model, K-Score, from version 1.0 to 2.0.

The banking industry is in the final stages of preparation, with the five major banks, which have relatively high credit risk assessment capabilities, piloting the credit scoring system, while other banks are organizing internal systems and establishing score application standards. The credit card industry is also working on revising terms and conditions and updating internal credit evaluation systems in response to the credit scoring system transition starting next year.

This content was produced with the assistance of AI translation services.