Even Without Overdue Card Payments... Everyday Habits That Lower Office Workers' Credit Ratings

Consumer Spending as a Significant Predictor of Credit Risk

"Useful Information for Assessing Future Repayment Capacity"

Empirical analysis has revealed that routine, unconscious consumer spending in daily life can serve as a decisive clue for lowering an individual's credit rating.

According to the 'Relationship Between Consumption Patterns and Credit Risk,' an article by Professor Nam Jooha, an emeritus professor at the Department of Economics at Sogang University, published in a recently released edition of Hana Financial Focus by the Hana Institute of Finance, the predictive power of consumer spending regarding credit risk was 65 percent. Professor Nam and his research team conducted an empirical analysis using data from approximately 200,000 real payment records of consumer expenditures.

Expenditures on consumables that provide immediate convenience, such as convenience stores, taxis, and cafes, reduce disposable capacity and ultimately decrease future repayment ability, thereby increasing credit risk. Pixabay

Specifically, among 119 subcategories, borrowers who spent more on items such as communication fees, convenience stores, taxis, and cafes/snacks showed a significantly higher credit risk. On the other hand, those who spent more on education, sports/exercise, clothing, and healthcare exhibited a lower credit risk. An analysis conducted by classifying these types of consumer expenditures into eight intermediate categories also found statistically significant correlations in five areas: personal expenditures, cultural expenditures, physical expenditures, essential expenditures, and other expenditures.

The research team explained that the reason consumer spending can predict credit risk in a meaningful way is due to its capital characteristics. Expenditures on items such as education, exercise, healthcare, and cultural activities can mitigate financial liquidity burdens arising from unexpected health deterioration and lead to the accumulation of human, physical, and cultural capital. In the long term, this can improve labor productivity and increase income, thereby reducing credit risk.

However, it was interpreted that consumptive expenditures that provide immediate convenience, such as convenience stores, taxis, and cafes, reduce disposable capacity and ultimately decrease future repayment ability, thereby increasing credit risk.

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Professor Nam stated, "When an individual's spending composition is observed, behavioral characteristics that are difficult to measure directly—such as time preference, risk aversion, and self-control—can be inferred through consumer spending patterns as indirect indicators." He added, "This offers useful additional information for pre-assessing a borrower's future repayment ability."

He emphasized that these results remain significantly related to individual credit risk even after controlling for income, saying, "This implies the need to supplement the preferential interest rate policies currently designed around income at Korean commercial banks with a system based on consumer behavior." He explained that supplementing blind spots in the existing preferential rate structure from this perspective could help address difficulties faced by low-income borrowers, thin file youth with limited credit history, and non-regular workers in accessing preferential rates.

Meanwhile, as of the article's publication, the Financial Services Commission has organized a credit evaluation system reform task force and is expanding and revising an alternative credit assessment system utilizing non-financial information.

This content was produced with the assistance of AI translation services.