By Kim Rahn
Younger generations' credit ratings have deteriorated since the global financial crisis, data showed Wednesday.
Economic analysts attribute it to youth unemployment and high college tuitions.
A Bank of Korea (BOK) report showed the average credit ratings for those in their 20s and 30s have fallen from 2008 to 2013, while those of older generations have risen.
The report was based on data from the Korea Credit Bureau (KCB) on 500,000 debtors.
The KCB's credit ratings range from one to 10, and people categorized in one to four grades have high-level credit, while those in five to six, mid-level, and those in seven to 10, low-level.
The average credit rating of debtors in their 20s was 5.14 in the first quarter of 2008, but it dropped to 5.62 in the second quarter of 2013. Their rating was the lowest among all age groups.
For people in their 30s, the rating also slid from 4.51 to 4.68.
Experts say credit ratings are decided by the debtors' incomes, and younger people have low ratings as they have difficulty finding jobs and making money.
"Many college students borrow money from banks and other financial companies to pay tuition," researcher Kim Young-do at the Korea Institute of Finance said.
"They can pay it back when they have income, but they usually land jobs in their late 20s or early 30s. With overdue debts, their credit gets bad," he said.
Kim said the government has also increased the total amount of state-supported student loans. The BOK report backed this, showing the loans extended from the Korea Student Aid Foundation increased from 4.1 trillion won in total in 2010 to 9.3 trillion won in 2013.
The default rate for the loans was 3.2 percent last September, 3.6-fold the average rate for household loans from banks, 0.9 percent.
"If students get behind in the loan repayment, they have to pay higher interest rates, thus they have more difficulty paying back. Now the government is trying to address the problem by cutting rates," he said.
A BOK official also said, "Growing student loans can cause low credit ratings of young people and thus prevent them from having healthy financial lives even after they get jobs."
He said more use of second-tier financial companies, such as private moneylenders, may be another reason for young people's falling credit ratings. A person's credit rating drops when he or she uses such firms.
"In this report, we don't have exact number of people who borrowed money from such companies. However, considering more and more households are seeking loans from them, we suspect the number of people in their 20s resorting to such lenders has also increased," he said.
Contrary to the younger generations, the average credit rating for people in their 50s improved from 4.47 to 4.36, and that for those in their 60s, from 4.5 to 4.32. The rating for 40-somethings did not change much, from 4.54 to 4.52.
"It reflects the trend that employment of older people is growing and that of younger ones is falling, which again becomes the cause of poor credit ratings of the latter," Kim said.
Younger generations' credit ratings have deteriorated since the global financial crisis, data showed Wednesday.
Economic analysts attribute it to youth unemployment and high college tuitions.
A Bank of Korea (BOK) report showed the average credit ratings for those in their 20s and 30s have fallen from 2008 to 2013, while those of older generations have risen.
The report was based on data from the Korea Credit Bureau (KCB) on 500,000 debtors.
The KCB's credit ratings range from one to 10, and people categorized in one to four grades have high-level credit, while those in five to six, mid-level, and those in seven to 10, low-level.
The average credit rating of debtors in their 20s was 5.14 in the first quarter of 2008, but it dropped to 5.62 in the second quarter of 2013. Their rating was the lowest among all age groups.
For people in their 30s, the rating also slid from 4.51 to 4.68.
Experts say credit ratings are decided by the debtors' incomes, and younger people have low ratings as they have difficulty finding jobs and making money.
"Many college students borrow money from banks and other financial companies to pay tuition," researcher Kim Young-do at the Korea Institute of Finance said.
"They can pay it back when they have income, but they usually land jobs in their late 20s or early 30s. With overdue debts, their credit gets bad," he said.
Kim said the government has also increased the total amount of state-supported student loans. The BOK report backed this, showing the loans extended from the Korea Student Aid Foundation increased from 4.1 trillion won in total in 2010 to 9.3 trillion won in 2013.
The default rate for the loans was 3.2 percent last September, 3.6-fold the average rate for household loans from banks, 0.9 percent.
"If students get behind in the loan repayment, they have to pay higher interest rates, thus they have more difficulty paying back. Now the government is trying to address the problem by cutting rates," he said.
A BOK official also said, "Growing student loans can cause low credit ratings of young people and thus prevent them from having healthy financial lives even after they get jobs."
He said more use of second-tier financial companies, such as private moneylenders, may be another reason for young people's falling credit ratings. A person's credit rating drops when he or she uses such firms.
"In this report, we don't have exact number of people who borrowed money from such companies. However, considering more and more households are seeking loans from them, we suspect the number of people in their 20s resorting to such lenders has also increased," he said.
Contrary to the younger generations, the average credit rating for people in their 50s improved from 4.47 to 4.36, and that for those in their 60s, from 4.5 to 4.32. The rating for 40-somethings did not change much, from 4.54 to 4.52.
"It reflects the trend that employment of older people is growing and that of younger ones is falling, which again becomes the cause of poor credit ratings of the latter," Kim said.
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