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Why having a good credit history pays

image of risk based pricing in Hong Kong personal loans

Hong Kong personal loan issuers use credit risk as a major input into their pricing decisions, as can be seen in the graph below. Lenders don’t share their exact pricing with us, but by using annuity curves and the data we do receive, we’re able to proxy the fully loaded costs.

Graph showing the avg. APR risk tier, for personal loans opened in Q3 2017
Graph showing the avg. APR risk tier, for personal loans opened in Q3 2017

And those costs, very clearly, move with risk. A good credit history usually leads to a lower risk score, which in turn has the potential to enable cost savings. A consumer wanting to borrow $75,000 over two years can expect to pay $5,097 per month at the median rate if they are scored subprime; $3,365 if they are scored prime; and $3,324 if they are scored super prime—a saving of up to $42,500 over the duration of the loan.

Consumers who are planning to apply for a loan should prepare themselves by taking steps to get their credit report in order. This starts with building a good credit history. While it is important to ensure current obligations are all being paid on time, staying within credit limits, not making too many new applications too quickly, and maintaining long-standing accounts also help to improve credit history.

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For more insights into the Hong Kong consumer credit market, read TransUnion’s latest quarterly Industry Insights Report and other articles here.

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