"Revolving Credit Is Not Mandatory... Caution Needed with Expressions Like 'Partial Payment Only'"

Financial Supervisory Service Issues Consumer Advisory on Revolving Credit
Cautions Against Expressions Encouraging Revolving Use
Long-Term Use May Negatively Affect Credit Ratings

The Financial Supervisory Service (FSS) has urged caution when using revolving credit (partial payment rollover agreement), which involves paying only part of the credit card bill and rolling over the rest. Since it is not a mandatory subscription, there is no need to use it indiscriminately, and it is important to familiarize oneself with the terms related to revolving credit in advance.

On the 11th, the FSS issued a consumer alert marked 'Caution' regarding the use of credit card revolving credit. This came after reviewing recent advertisements by card companies, where terms like 'minimum payment' and 'partial payment' were used instead of 'revolving credit,' potentially misleading financial consumers. The FSS emphasized the importance of understanding all relevant details to avoid unexpected excessive debt burdens caused by using revolving credit without clear recognition.

The official term for revolving credit under the standard terms and conditions is 'Partial Payment Amount Rollover Agreement.' It is a method where only part of the credit card bill is paid, and the remainder is rolled over to the next month. However, interest is charged on the rolled-over amount. The interest rate on revolving credit is close to the legal maximum rate of 20%. As of the end of last month, the average interest rate was 16.7%, making it a high-interest loan-type contract. Using it solely for convenience can lead to excessive debt and risk of default. According to the Korea Federation of Banks, despite the continued high interest rates, as of the end of October, the revolving credit balance of seven major card companies?Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Hana, and Woori?reached a record high of 7.4595 trillion KRW.

In response, the FSS introduced various precautions when using revolving credit. First, revolving credit is not a mandatory subscription for credit cards. It is important to regularly check whether you have been unknowingly enrolled in the revolving credit service and reduce unnecessary interest burdens.

Particular attention should be paid to terms like 'minimum payment' and 'partial payment.' Recent advertisements by card companies use various terms such as 'minimum payment' and 'payment without worry of delinquency' without mentioning the word revolving credit. This can lead to misunderstandings, such as confusing revolving credit with a 'lump-sum installment payment service' where only part of the amount is paid in the current month. Since there is concern that such terminology minimizes resistance to revolving credit and encourages subscription, extra caution is necessary.

Additionally, revolving credit can negatively affect credit ratings. While general loans can help improve credit scores if repaid on time over a long period, long-term use of revolving credit often negatively impacts credit ratings. An FSS official pointed out, "Consumers should be cautious of advertising phrases that definitively claim revolving credit is a 'payment convenience product that prevents credit rating or personal credit score decline.'"

There is also a risk of lump-sum repayment. If revolving credit is continuously used and the principal amount increases, the revolving credit may not be extended at some point due to reasons such as credit rating decline. In such cases, the total principal and fees accumulated must be repaid at once.

An FSS official stated, "We will share the issues found during the recent inspection of card companies' revolving credit advertisements with the Credit Finance Association and the industry, and work together with them to improve the situation to prevent recurrence of similar cases and protect consumers from damage."