🚨 Credit Score Inflation Gets Worse
Today Korean Economic News for Beginners | 2025.08.19
0️⃣ Too Many 900+ Scores Make 830-890 Look Like 'Low Credit'
📌 Credit forgiveness and easier scoring rules create too many high scores, banks make their own stricter rules
💬 Korean banks are seeing 'credit score inflation' get worse. After COVID-19, the government forgave many people's bad credit history and started counting more things like phone bill payments in credit scores. Now over 40% of people have 900+ credit scores. This means people with 830-890 scores, who used to be considered excellent credit customers, are now seen as 'relatively low credit.' Banks are responding by caring less about credit scores and more about job stability, income level, and banking history when deciding loans. The days when a high credit score alone could get you easy loan approval are over. Now you need to prove you can actually pay back the money.
1️⃣ Easy Explanation
Credit scores have gone up so much that 830 points, which used to be a good score, is now considered relatively low. It's like when all students' test scores go up, so 80 points isn't as good as it used to be.
Credit scores show how trustworthy you are with money, from 300 to 1,000 points. Before, 800+ was 'excellent' and 750+ was 'good' credit. But now everything has changed.
The biggest change is the huge increase in people with 900+ scores. In 2020, about 15% of people had 900+ scores. Now it's over 40%. This happened because of several policy changes.
First was 'credit forgiveness' policy. The government helped people hurt by COVID-19 by deleting their old late payment records. If people paid back all their debts, the government erased their bad credit history to help them recover. This made many people's scores jump up all at once.
Second was changing how credit scores are calculated. Before, banks only looked at loans and credit card history. Now they also count things like pension payments, phone bills, and insurance payments. People who live responsibly saw their scores go up naturally.
Third, people became much better at managing their credit scores. Credit score apps became popular and people learned how to improve their scores, so many people started actively managing them.
But these changes aren't good for everyone. Since scores went up overall, people with 830-890 scores don't get the same good treatment as before. Banks now think "830 points isn't that high when 900 points is common."
One bank official said, "We used to give the best interest rates to people with 830+ scores, but now you need 900+ to get top treatment." Another bank said, "We now charge higher interest rates to people under 900 points more often."
The bigger change is that banks now care more about 'real ability to pay back money' than just credit scores. Even if your score is high, banks might reject your loan if your income is unstable or you have too many other loans. On the other hand, if your score is a bit lower but you have a stable job and good income, banks are more likely to approve your loan.
Credit scores are still important, but the days when only a high score mattered are over. Now you need both a good score and real financial strength.
2️⃣ Economic Terms
📕 Credit Score Inflation
Credit score inflation happens when everyone's credit scores go up, making previously high scores worth less.
- This often happens when government policies or easier scoring rules are introduced.
- It becomes easier to get high scores, but they don't give you as many benefits as before.
- This makes banks use other criteria more when deciding loans.
📕 Credit Forgiveness
Credit forgiveness is when the government deletes people's old late payment records after they pay back all their debts.
- This helps people who had financial trouble get back into the banking system.
- When bad history disappears, credit scores go up quickly.
- When done for many people at once, it affects everyone's credit scores.
📕 Non-Financial Information
Non-financial information includes life activities counted in credit scores besides loans and credit cards.
- Examples include pension payments, phone bills, and insurance payments.
- This helps people with little banking history still get credit scores.
- When you live responsibly, it helps improve your credit score.
📕 Additional Interest Rate
Additional interest rate is extra interest added to the base rate based on individual risk.
- It depends on credit risk, whether you have collateral, and loan period.
- Lower credit grades and no collateral mean higher additional rates.
- This is why different people pay different interest rates for the same loan.
3️⃣ Analysis and Economic Outlook
✅ Why Credit Score Inflation Happened
Let's look at why credit scores went up overall and how this changed financial markets.
First, large-scale credit forgiveness fundamentally changed score distribution. From 2020 to 2024, four rounds of credit forgiveness deleted bad records for about 6 million people. This is about 20% of all working-age people in Korea. Especially for people with small debts under 1 million won, their credit scores went up an average of 100-200 points. While this policy helped people access banking services short-term, long-term it made the whole credit score system less useful for telling people apart.
Second, changes in credit scoring models sped up score increases. Before, scoring focused mainly on 'negative' information (late payments, bankruptcies). Now it actively includes 'positive' information (reliable payments, stable transactions). Since most people have 99% pension payment rates and 100% automatic phone bill payments, this information greatly helped scores go up. Also, extending the look-back period from 2 years to 5 years made long-term responsible people's scores go up even more.
Third, people's active credit management added fuel to score increases. Credit score checking apps now have over 10 million monthly users, making 'credit score management' a trend itself. People started systematically managing their scores by controlling card usage patterns, preventing late payments, and using various financial products. This created a completely different environment from the past when people didn't care about credit management.
These structural changes working together fundamentally changed what credit scores mean.
✅ How Banks Are Responding
Let's look at banks' new evaluation criteria and strategies in response to credit score inflation.
First, banks are strengthening their own credit evaluation models. Instead of just using credit rating companies' scores, each bank is developing its own evaluation criteria. For example, Bank A now values job stability 3 times more than before, and Bank B reflects existing transaction history by over 50%. They're also applying financial indicators like debt-to-income ratio (DTI) and debt service ratio (DSR) more strictly. This is part of efforts to accurately assess real repayment ability rather than simple scores.
Second, they're applying different evaluation criteria for different loan products. For mortgage loans, they focus more on income stability and collateral value than credit scores. For personal loans, they look more carefully at existing transaction records and late payment history. Especially for large loans, factors other than credit scores are becoming more important. For personal loans over 100 million won, even people with 900+ scores are getting rejected if they lack income proof and job stability.
Third, they're introducing sophisticated risk assessment systems using big data and AI. Instead of simple credit scores, they're building systems that calculate individual risk using hundreds of variables. They're developing models that analyze spending patterns, account transaction history, and types of businesses where cards are used to predict actual repayment ability. This helps distinguish between customers with high scores but actual high risk, and customers with lower scores but who are actually stable.
These changes by financial institutions are developing the loan market in a more sophisticated and personalized direction.
✅ Impact on Individuals and Society
Let's analyze how credit score inflation affects individual financial lives and society overall.
First, individuals' financial strategy planning is becoming more complex. Before, there was a simple goal of "just raise your credit score," but now you need both a good score and real economic power. Securing stable income sources, managing appropriate debt levels, and accumulating experience with various financial products have all become important. Especially for young people, despite high credit scores, many are suffering disadvantages in loans due to insufficient income, making employment and income stability even more important.
Second, there are mixed effects on financial inclusion. Positively, credit forgiveness and easier evaluation criteria have allowed groups previously excluded from financial services to re-enter the banking system. People who couldn't get loans due to past late payment history have recovered their credit and returned to normal financial life, which is a clear achievement. But negatively, middle-class financial access is actually getting worse in some cases. Middle-class people with 830-890 scores are getting loans under worse conditions than before, increasing feelings of relative deprivation.
Third, trust issues with the credit score system itself are being raised. As situations where high scores don't bring benefits keep happening, skeptical views like "what's the point of credit scores?" are increasing. This could long-term reduce people's motivation to manage their credit, which is a risk factor. Also, credit rating agencies are under pressure to develop new evaluation models, and the government is considering a complete overhaul of the credit score system.
Ultimately, credit score inflation is demanding wide-ranging changes from individual financial behavior to society's entire credit system.
4️⃣ Conclusion
Credit score inflation is a typical case where well-intentioned policies created unexpected side effects. Credit forgiveness to help ordinary people and easier evaluation criteria to expand financial inclusion ended up weakening the discriminatory power of the entire credit score system.
The biggest problem is that the standard for 'good credit' has risen rapidly, increasing relative deprivation among the existing middle class. Even though 830 points represents sufficiently responsible credit management, the paradoxical situation of being classified as 'low credit' due to the normalization of 900+ scores is occurring.
Banks' responses are also noteworthy. Changing evaluation criteria to emphasize real repayment ability over credit scores can be seen as a reasonable change. However, this has made the factors individuals must consider more complex, and gaps in financial accessibility are widening further based on income and job stability.
What's needed going forward is a complete reorganization of the credit score system. In the current structure where almost everyone receives high scores, it's hard to expect discriminatory power. It's time to consider making the scoring system more detailed or applying different evaluation criteria by purpose.
Individuals also need to change their strategies. Rather than just focusing on raising credit scores, they need to manage comprehensive creditworthiness through securing stable income, reasonable debt management, and accumulating experience with various financial transactions. Especially for young people, building both scores and economic power simultaneously has become more important.
The government and financial authorities also need to learn about unexpected policy ripple effects from this situation. While policies like credit forgiveness are definitely necessary, it's important to review their impact on the entire system in advance and prepare supplementary measures.
Ultimately, this credit score inflation situation signals that our society's credit system needs to evolve to a new stage. It's time to move beyond simple score competition and create a more sophisticated and fair system that evaluates real creditworthiness.
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