Credit Ratings Evolve: Access to Loans Expands for Thin File Borrowers

In the near future, housewives and recent graduates with limited financial histories are expected to have greater access to loans. This shift is driven by financial authorities' commitment to inclusive finance, prompting the banking sector to engage in alternative credit evaluations using non-financial data.

According to the financial sector, the Financial Services Commission plans to focus on the overhaul of the credit evaluation system during an inclusive finance meeting scheduled for this week.

This initiative follows President Lee Jae-myung's strong criticism of the traditional credit rating system, describing it as "cruel" and "predatory finance." The authorities aim to assess borrowers' repayment abilities by utilizing non-financial data such as telecom bills, utility payments, rent, and tax payment histories, moving away from the income-centric approach.

As the use of data expands, changes in the credit assessment systems of banks are anticipated. Previously, privacy concerns limited the personal information banks could access, resulting in assessments primarily based on income. For instance, a housewife owning a 3 billion won apartment in Apgujeong would struggle to secure a loan without a declared income.

However, banks plan to incorporate payment histories for telecom bills, successful and blocked small payments, spending patterns, and platform activity information into their credit evaluation systems to better serve low to mid-credit borrowers.

KB Financial Group will introduce dedicated savings accounts and loan products tailored to gig workers starting this month. The platform earnings of gig workers will be recognized as salary under the "KB Star Banking Salary Club," providing them with the same benefits as regular salary transfer customers.

Competition to refine credit assessment models for thin file borrowers is also intensifying. Shinhan Bank plans to narrow the interest rate gap between high-credit borrowers and average loan rates to within 2 percentage points. NH Bank intends to implement an alternative information-based machine learning model in October, expanding its application from individuals to sole proprietors.

Internet-only banks are also enhancing their alternative credit evaluations, which they touted as a strength from their inception. Kakao Bank has incorporated usage histories from Kakao Mobility, Kakao Gift, Kyobo Bookstore, YES24, and Lotte Members into its credit evaluations, approving over 800 billion won in additional loans for low to mid-credit borrowers.

A financial sector official stated, "While it may be challenging to offer large loans to thin file borrowers, we can expand access more than before. Absorbing thin file borrowers has become an unavoidable task linked to the performance of inclusive finance."