"High Credit Score but No Loan Approval"…High Credit Borrowers Face Loan Discrimination and 'Frustration' (Comprehensive)

Financial Authorities Plan to Raise Credit Thresholds for High-Credit Borrowers Under Next Year's Loan Volume Regulations
Banks Open Loans Mainly to Low-Income, Low-Credit Borrowers While Tightening Restrictions on High-Credit Borrowers
High-Credit Borrowers Who Carefully Manage Credit Scores Face Reverse Discrimination... Controversy Over Violation of Market Principles

[Image source=Yonhap News]

[Asia Economy reporters Kwangho Lee and Hayoung Ki] Jung Woo-cheol (42, pseudonym), who works at a large corporation, was shocked when he tried to get a loan ahead of several family events next year. His main bank, an internet-only bank, rejected his loan application despite his high credit rating. Other banks also set loan amounts far below his requested limit, citing his top-tier credit rating as an issue. Jung said, "I have carefully managed my credit score to avoid delinquencies, but having a high rating has become a disadvantage, which I don't understand. Why should a top-tier borrower with the ability to repay be discriminated against compared to middle- or low-credit borrowers?"

As financial authorities announced plans for stringent household debt management next year, dissatisfaction among high-credit borrowers is reaching a peak. While the total loan volume for high-credit borrowers with credit scores exceeding 900 will be further tightened next year, loans for middle- and low-credit borrowers are expected to be eased under the pretext of supporting genuine borrowers. Some argue that this approach contradicts common sense in the financial market and is misaligned with regulatory goals from a soundness perspective.

High-credit borrowers face higher loan barriers and soaring card loan interest rates

According to the financial sector on the 21st, internet-only banks are significantly reducing loans to high-credit borrowers and expanding benefits for middle- and low-credit borrowers due to strong loan regulations by financial authorities. They have raised the bar by restricting new loans and overdraft accounts for high-credit borrowers or increasing loan interest rates. K-Bank, KakaoBank, and Toss Bank have set this year's loan targets for middle- and low-credit borrowers at 20.8%, 21.5%, and 34.9%, respectively, but as meeting these targets becomes difficult, the same trend is expected to continue next year.

Commercial banks have also decided to reduce the total loan volume for high-income and high-credit borrowers while significantly increasing loans for middle- and low-credit borrowers. This means it will become harder for high-credit borrowers to borrow money from banks offering lower interest rates.

Long-term card loans (card loans) from credit card companies are also seeing interest rates rise mainly for high-credit borrowers. Over the past three months, card loan interest rates for high-credit borrowers in standard grades 1 and 2 have increased by nearly 2 percentage points. Last month, the average card loan interest rates (operating prices) for grades 1 and 2 across seven major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) ranged from 8.11% to 13.48%. Four of these seven companies raised their average card loan interest rates for grades 1 and 2 compared to September.

Samsung Card's rate surged from 9.86% in September to 11.94% last month, an increase of 2.08 percentage points. Hyundai Card also rose from 10.38% to 11.36%, up 0.98 percentage points during the same period. This is due to a reduction in the discount rate adjustments such as preferential rates and special promotional discounts. In other words, credit card companies have tightened loan management and reduced marketing efforts like interest rate discounts. Compared to the end of last year (6.64% to 12.44%), the lower end increased by 1.47 percentage points and the upper end by 1.04 percentage points. Last year, high-credit borrowers in grades 1 and 2 enjoyed interest rate discounts of up to nearly 5%.

A credit card industry insider said, "Due to the financial authorities' strengthened household loan regulations, card loan interest rates for high-credit borrowers inevitably have to rise. With regulatory tightening and base rate hikes, card loan interest rates are expected to continue increasing next year."

Some criticize that high-credit borrowers are being squeezed as a means to curb housing prices or speculative investments. They argue that dividing genuine borrowers by credit rating and income distorts the loan market, which is inconsistent with market order.

[Image source=Yonhap News]

Financial authorities say "High-credit borrowers will not be disadvantaged"... Experts express 'concerns'

Financial authorities maintain that the upcoming household loan volume management and borrower-specific Debt Service Ratio (DSR) system will not disadvantage high-credit borrowers, emphasizing that this is only a 'perception.' A financial authority official explained, "If loans were denied solely based on credit grades, such as refusing loans to grades 1 to 5 and only approving from grade 6 onwards, that would be reverse discrimination. However, loans for middle- and low-credit borrowers come with relatively higher interest rates and lower limits, so there is no disadvantage to high-credit, high-income borrowers."

Experts, however, voice concerns. Professor Sung Tae-yoon of Yonsei University's Economics Department said, "Fundamentally, loans should be given to borrowers with income and repayment ability based on their capacity and credit rating. The controversy over reverse discrimination arises because support for low-income people should be provided through fiscal aid, but everything is being approached through financial support."

Meanwhile, in a self-employed community, a trend is spreading where people deliberately lower their credit scores to qualify for government-supported loans. Particularly, a peculiar phenomenon is occurring where high-credit borrowers in grades 1 and 2, pushed out of banks due to total volume regulations, are turning to secondary financial institutions.

A financial sector insider pointed out, "Telling lenders not to lend to capable people and only to lend to those in difficulty contradicts the basic logic of finance. From the financial companies' perspective, there is a significant risk of rising non-performing loan ratios."

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