[Song Seungseop's Financial Light] Different Credit Scores, How to Improve Them Quickly?

Finance is difficult. It is filled with confusing terms and complex backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Accordingly, Asia Economy selects one financial term each week and explains it in very simple language. Even if you know nothing about finance, you can immediately understand these 'light' stories that turn on the bright 'light' of finance for you.

On the 7th, a scene at a bank counter in downtown Seoul shows the ongoing trend among major commercial banks to lower loan interest rates while raising interest rates on regular savings and installment savings products. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Song Seung-seop] As loan interest rates rise rapidly, the importance of credit scores is greater than ever. The higher your credit score, the more convenient your financial life becomes, such as easier issuance of credit cards, and loan interest rates are also much cheaper. These credit scores are measured differently by each evaluation company. We will explain the differences and how you can improve your score.

Credit scores are assigned by various credit evaluation companies. In the domestic personal credit evaluation sector, the representative scores are the 'KCB Score' provided by All Credit and the 'NICE Score' from NICE Information Service. Their detailed evaluation methods are confidential and not publicly known. However, there are common principles: whether you have excessive debt compared to your ability, whether you repay borrowed money on time, and your income and credit habits. These are broadly categorized into four areas: 'repayment history,' 'debt level,' 'transaction period,' and 'credit type.'

The two scores reflect these four categories differently. It is possible to be classified as a high credit rating by KCB but as a medium credit rating by NICE, and this is why. Assuming a general customer with no long-term delinquency records, the repayment history weight is 29.7% for NICE and 21% for KCB. This means NICE places more importance on how well you borrow and repay money than KCB does. If short-term delinquency occurs or the delinquency period lengthens, the NICE score can drop more steeply.

The credit transaction period also has a higher weight in the NICE score at 13.5%, compared to 9% for KCB. The credit transaction period is calculated based on the date you opened a card or borrowed money. If you maintain normal transactions for a long time, you are considered a good borrower, which raises your credit score. Regarding debt level, the two companies have similar weights of 25.5% and 24%, respectively.

On the other hand, in the credit type category, NICE reflects 31.3%, while KCB places a 38% weight. Credit type evaluates factors such as the loan industry, product, and interest rate level. Borrowing money from high-risk places like secondary financial institutions or loan companies, or using short-term loans like card loans, often lowers the score.

Focus bill payments on your main bank, and keep your credit card limit high

However, different weights apply to customers with long-term delinquency. NICE sharply increases the weight of repayment history from 29.7% to 47.8%. KCB also raises it from 21% to 32%. This means that for borrowers who have not repaid money for a long time, repayment history is examined more intensively than other factors. Especially, NICE also significantly increases the debt level weight from 25.5% to 42.8%. This is why in the financial sector, there is a saying that 'NICE scores emphasize the ability to consistently repay debts without falling behind.'

So, which credit score should you focus on managing? The answer is 'both.' Most financial institutions receive your credit information from both agencies. Then, depending on the financial institution's policy or situation, they may look at both or only one. This is why you need to pay special attention to managing your credit scores for smooth financial activities.

To raise your credit score, it is important to change your daily habits. Using automatic transfers for loan interest payments and credit card bills is a good habit. If you forget the payment date, even a small amount can leave a delinquency record, which can negatively affect your credit evaluation when accumulated. If you change your address, be sure to notify the financial institutions you are dealing with. This prevents missing delinquency facts or change information, avoiding disadvantages. Especially, since delinquency is reflected more by duration and frequency than by amount, you should not delay payments for communication fees or small credit card bills.

Using credit cards regularly is also a good habit. Credit cards involve borrowing money and repaying later, which is advantageous for securing a credit score. Set your credit limit as high as possible and maintain steady spending at an appropriate level. Of course, you must avoid delinquency. However, if you are a student without income, you should be cautious in choosing a credit card. Excessive use or delinquency can significantly lower your credit score and lead to a credit delinquency trap.

Also, select a main bank and concentrate your utility and bill payments there. Banks have their own credit evaluation systems and favor customers with many transaction records. It is also necessary to regularly check whether your credit information is well managed.

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