Credit information

Credit information (신용정보/信用情報) refers to certain information needed to determine the creditworthiness and credit transaction capacity of a counterparty in a commercial transaction, including financial transactions.

The types of credit information business include:
 * Credit inquiries (신용조회);
 * Credit investigation (신용조사);
 * Debt collection (채권추심); and
 * Credit rating (신용평가).

Any person intending to engage in a credit information business must obtain a license from the Financial Services Commission (FSC) for each business type, in accordance with the Act on the Use and Protection of Credit Information (신용정보의 이용 및 보호에 관한 법률).

Subject to the recent amendment (by Act No. 11845 on May 28, 2013) to the Financial Investment Services and Capital Markets Act (자본시장 및 금융투자업에 관한 법률), the application for credit rating business and licensing requirements, duties and responsibilities of credit rating agencies shall be regulated by the new Act.

Key words
credit information, credit rating, credit inquiry, credit investigation, debt collection

Credit Rating Agencies
Credit rating refers to the business of assessing the probability of repayment of principal and interest in connection with securities and other debts, or of judging the creditworthiness of companies. In Korea, a credit rating system for commercial paper was first introduced in September 1985, and one for non-guaranteed bonds in March 1986.

As of late June 2011 there were four licensed credit rating agencies in operation ― Korea Ratings, Korea Investors Service, NICE Investors Service, and Seoul Credit Rating & Information, Inc. Credit rating agencies engage primarily in the business of assessing issuers and guarantee institutions, and also provide services incidental to the credit rating business including assessment of the financial capacities of insurance organizations, feasibility assessment on project financing, stock valuation, evaluation of the economic profitabilities of companies and more.

Evaluation of securities refers to the assignment of a credit rating to the commercial paper, non-guaranteed bonds and asset-backed securities (ABSs) issued by companies and financial institutions. Commercial paper offered for sale by a merchant bank must obtain ratings from two or more credit rating agencies.

When a securities company engages in trading commercial paper or acts as a broker or an agent for such trading in the off-board market, it is only allowed to handle commercial paper that has been rated by two or more credit rating agencies. Non-guaranteed bonds may not be underwritten by financial institutions or accepted into the trust assets held by banks without first receiving ratings from two or more credit rating agencies. Ratings for ABSs are necessary in order for special purpose companies to issue these securities based on assets transferred from the asset holders. The commercial paper rating scale comprises six categories, from A1 to D, while the bond rating scale comprises 10 broad rating categories from AAA to D. For ABSs use the same scale is applied as for bond ratings.

Credit rating agencies also assess the issuers of debt obligations and guarantee institutions. Issuer rating refers to the assignment of a credit rating to an issuer based upon an evaluation of its overall capacity to repay its full financial obligations. A guarantee institution rating is a credit rating determined for a guarantee institution’s ability to repay its guaranteed obligations by assessing major rating factors including the business and financial risk of that institution. Since only debentures for which the principal and interest payments have been guaranteed by rated guarantee institutions are allowed to be incorporated into trust assets, financial institutions intending to provide guarantee services must obtain the appropriate ratings.

Credit Inquiry Agencies
The credit inquiry business denotes the collecting and arranging of credit information on individuals and corporations and providing clients with this information upon request. Credit information includes data on credit transactions, the details of loan transactions, information on loan defaults, details of loan guarantees, and public records information. As of June 2011, there were six companies licensed to provide credit inquiry services in Korea － NICE Information Service, Korea Credit Bureau, Seoul Credit Rating & Information, Inc., e-Credible, NICE D&B and Korea Enterprise Data. Among these, NICE Information Service and Korea Credit Bureau serve as credit bureaus that collect personal credit information from financial, corporate and public institutions and process that information into the forms of credit scores that can be made available to customers including financial institutions.

Credit Investigation Agencies
Credit investigation refers to the business of investigating the credit information of individuals or corporations in order to provide it to clients upon request. Through credit investigation services, clients are able to verify in advance the credit statuses and debt-servicing capacities of counterparties, as well as to conduct asset investigations for the purposes of identifying of any concealed assets of debtors and preserving claims in cases of default or insolvency. A credit investigation agency, upon request from a client, analyzes and organizes credit information collected from written documents and on-site investigations, including interviews and due diligence, prior to preparing a credit investigation report.

Debt Collection Agencies
Debt collection refers to the business of recovering claims on behalf of and with the authorization of creditors, through investigation of the assets of debtors failing to repay claims within agreed timelines, dunning or recovery of payments from debtors. When the authority for collecting a creditor’s outstanding claims on a debtor is delegated to a collection agency, that agency is required to inform the debtor of the delegation of authority for claims collection and return any recovered claims to the creditor. Claims which may be the object of debt collection are monetary claims stemming from financial and commercial transactions between companies or between companies and individuals, including financial liabilities and payments for articles and services. To collect such debts, collection agencies should ascertain the whereabouts of the debtors, conduct asset and credit investigations, dun by mail, on the phone or through visits, and take legal actions for the disposition of assets.