Various loan hurdles at commercial banks are increasing. This is the result of the spread of 'credit score inflation' due to the popularity of credit score management services centered on fintech (finance + technology), and the large-scale credit pardons promoted by the government amid the triple (high) crisis.
As the average credit score of new borrowers who received unsecured loans and mortgage loans rose to the 1st to 2nd grade level classified as high credit, financial consumers who could not overcome the raised threshold seem to be turning their attention to long-term card loans (card loans) from credit card companies.
According to the Korea Federation of Banks on the 4th, the average credit grade of unsecured loans handled by the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) in April was 926.2 points (914~940 points) based on Korea Credit Bureau (KCB). This is about 9 points higher than the same month last year (917.6 points) and more than 10 points higher than the end of January this year (915.2 points).
In particular, some banks had an average credit score reaching 940 points, approaching the 941~1000 point level classified by KCB as 1st grade high credit. This phenomenon is not limited to commercial banks. The average credit score of unsecured loans at the three internet-only banks (Kakao, K Bank, Toss Bank) also rose about 10 points from 893.6 in January to 903.3 in April. Even at internet-only banks, the average credit score range exceeded 900 points.
The mortgage loans at commercial banks show a similar trend. The average credit score of new mortgage loan borrowers handled by the five major commercial banks in April reached 933.2 points, about 2.6 points higher than the end of January this year (931.6 points). Some banks recorded an average credit score of 944 points, reaching the 1st grade (941~1000 points) level. While it is true that mortgage loan borrowers tend to have higher credit scores due to the nature of the loan, the upward trend is continuing.
Industry insiders point to the influence of credit rating management services, which have recently gained popularity in various fintech applications (apps), as the background of this phenomenon. A representative from a commercial bank said, "Recently, various fintech apps have been providing tips to raise credit ratings, creating an atmosphere where individuals can easily manage their credit scores," adding, "It is more accurate to say that overall credit scores have risen rather than banks strictly screening loans."
The impact of the large-scale credit pardons implemented by the government is also cited. The government carried out credit pardons in 2021 under the pretext of reducing damage caused by the COVID-19 pandemic, and this year, under the current administration, large-scale credit pardons were conducted again citing the triple (high) crisis. As of mid-last month, the number of people subject to pardon reached about 2.858 million.
As a result, overall credit scores are on the rise. According to KCB, as of the end of last year, among the total 49,533,733 evaluated individuals, 43.4% (21,493,046 people) had credit scores exceeding 900 points. The number of ultra-high credit individuals with scores above 950 points also increased by about 1.47 million compared to the same period last year and about 3.25 million compared to 2020, reaching 13,146,532 people.
As overall credit scores rise, a 'balloon effect' is also emerging. As credit score hurdles increase, the demand for quick funds turning to the secondary financial sector is growing. Recently, savings banks, which are experiencing a decline in performance, have been reducing their operating assets in response, causing card loans from credit card companies, known as a quick cash window for ordinary people, to increase sharply. According to the Credit Finance Association, as of the end of April, the card loan balance of nine domestic credit card companies reached about 39.9644 trillion won, an increase of 7.3% compared to the previous year, approaching 40 trillion won.
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