Revolving credit plagues 1m cardholders

Financial authorities seek to curb card debt rolled over past due date


About 1 million credit cardholders with low credit are facing further credit downgrades due to potential defaults on their revolving credit, prompting financial authorities to revise related rules.

The revolving credit system allows cardholders to pay only between 5 and 10 percent of their monthly credit card bills and have the rest rolled over to the following month until it is fully paid off.

Credit card firms charge consumers high interest on the roll-over balance, as much as 20-30 percent annually. A single delay in repayment pulls down the borrower’s credit rating to the bottom range.

The total number of credit cardholders with a revolving balance stood at around 2.9 million, some 35 percent of whom are low-credit borrowers, financial authorities said Thursday.

The delinquency rate of revolving credit stood at 3.1 percent as of last month, above that of the overall credit card industry (2.1 percent), with the outstanding amount averaging 2.1 million won ($1,773) per person.

“Many became defaulters after paying off a credit card bill with another card until they could no longer bear the interest burden,” said an official at a public credit counseling service.

Financial authorities are taking steps to raise the minimum payment requirement and lower the interest rates. They are also considering reducing the loan limits for borrowers with revolving credit balances and banning revolving credit for cash advances.

The nation’s financial watchdog expects the use of revolving credit to decline as restrictrictions on credit card issuance to people with low credit are implemented this month.

Some credit card firms are set to limit revolving credit.

Despite growing concern over revolving credit, separate industry data showed the card firms have raised the interest rates for cash advances and card loans during the second quarter, with top player Shinhan Card Co. upping the rate by 0.04 percentage point to an annual 23.35 percent.

The net profit of Korean credit card companies surged 21 percent on-year in 2011, with earnings from cash advances and card loans increasing 24 percent from a year earlier, according to the Korea Credit Finance Association.

By Kim So-hyun (sophie@heraldcorp.com)