Korea Inclusive Finance Agency to develop alternative credit scoring system using non-financial data

The Korea Inclusive Finance Agency is developing a credit assessment system that evaluates the repayment capacity of thin-filers — people with limited credit histories — and low- to mid-credit borrowers using a range of non-financial data. Thin-filers typically include young people entering the workforce, homemakers and retirees, whose limited financial records make it harder for them to access credit.

According to financial industry sources Tuesday, the agency recently commissioned a research project titled "Development of a Non-Financial Alternative Credit Bureau Model for Low-Income Borrowers" and set a target to complete development by year-end.

The core of the initiative is to build a credit scoring model tailored to thin-filers — including unemployed youth, homemakers and older retirees with sparse financial histories — that can identify potentially creditworthy borrowers and help them gain a foothold in the mainstream financial system.

The goal is to establish a more rational basis for setting loan interest rates and improve financial access through more sophisticated credit assessments that incorporate diverse non-financial alternative data.

To that end, the agency plans to build a credit evaluation framework that draws on non-financial data sources — including telecommunications records, public data and e-commerce activity — to assess the financial reliability of thin-filers and low- to mid-credit borrowers from multiple angles.

The effort reflects a recognition that the existing credit scoring system fails to adequately capture the creditworthiness of these borrowers.

Under the current system, credit rating firms calculate a borrower's credit score based on information such as repayment history and debt levels, which financial institutions then use as a reference when deciding whether to approve a loan and on what terms — including the credit limit and interest rate.

Critics have noted that alternative data remains only a discretionary supplementary tool in the financial sector, leaving alternative credit assessment underdeveloped. Financial regulators, who have made inclusive finance a priority, have identified the expansion of alternative credit scoring as a key policy objective.

As part of that effort, the agency plans to develop its own alternative credit bureau model and share it with secondary lenders — such as savings banks and mutual finance companies — that lack the resources to build their own credit scoring systems, with the aim of invigorating the domestic alternative credit assessment market.

"We are developing an alternative credit bureau model to address the gaps that arise from credit score thresholds," an agency official said. "Alternative credit assessment is something that needs to keep expanding in the private sector as well, and we intend to develop and provide the relevant data."

The agency plans to complete development by the end of this year, then apply the model on a pilot basis to policy-backed financial products to monitor its effectiveness.