[News Terms] Up to 3.3 Million People Receive Credit Amnesty Starting Today, 'Credit Scores' Also Increase

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The 'Credit Amnesty' program, which helps up to 3.3 million people with overdue debts under 20 million won recover their credit, will be implemented starting today (the 12th). The program targets low-income individuals and small business owners who incurred small overdue debts under 20 million won between September 1, 2021, and January 31 of this year, and who have fully repaid their overdue amounts by May 31. Once their overdue history is deleted through the credit amnesty, their individual 'credit evaluation scores (credit scores)' will automatically increase, enabling them to obtain credit cards or loans.

Kim Ju-hyun, Chairman of the Financial Services Commission, is speaking at the 'Rapid Credit Recovery Support Implementation Event for Low-income and Small Business Owners' held on the 12th at the Bankers' Hall in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

Credit scores are indicators quantified on a scale from 1 to 1000, statistically analyzing a customer's credit information by a credit bureau (CB) to assess the likelihood of continuing credit activities without credit risks such as long-term overdue payments of 90 days or more within the next year. This system was implemented in 2021 to resolve issues arising from the previous credit rating system and to enable systematic loan screening.

Previously, the financial sector used a credit rating system divided into 1 to 10 grades, but there were many complaints about significant disadvantages when different loan criteria were applied due to minor score differences causing grade changes. For example, a credit score of 665 and 662 would be classified as grade 6 and grade 7 respectively under the rating system for consumers with similar scores. Consumers classified as grade 7 faced disadvantages such as being unable to obtain credit cards.

The credit score system was introduced as a solution to these problems. Applying credit scores based on detailed points allows for personalized credit provision for individuals.

Credit scores are calculated by comprehensively considering various financial information such as the customer's debt level, repayment history, and credit transaction period, with scores closer to 1000 indicating higher creditworthiness. Financial institutions use credit scores calculated by CBs according to these standards, along with their own credit evaluation models, to decide on financial transactions such as loan approvals or credit card issuance.

For consumers about to engage in financial transactions, managing every single point of their credit score is important because differences in credit scores can affect the scale of financial activities. It is especially important to avoid overdue payments, even if the amount is small. If overdue payments are unavoidable, it is best to repay the oldest overdue debts first. Additionally, appropriately using credit and debit cards and actively utilizing bonus point systems can also help in credit management.

Meanwhile, NICE Information Service estimated that, due to the government's credit amnesty measure, the credit scores of 2.64 million individuals who completed full repayment as of the end of February this year will increase by an average of 37 points (from 659 to 696). As a result, about 150,000 people will be able to obtain credit cards, and approximately 260,000 will exceed the average credit score for new loans in the banking sector.

Korea Credit Data also announced that the credit scores of about 175,000 individual business owners who completed full repayment as of the end of February this year will increase by about 102 points (from 623 to 725). It predicted that about 79,000 individual business owners will be able to obtain loans from the primary financial sector.

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