Loans and household debt has been, for a while, a big issue in the Korean economy. From small to large amounts, and through legal or “illegal” means, people have been loaning money for different purposes. Speaking of loan, the issue of credibility becomes inevitable.
The government has announced that from this year, December 3rd, overdue of loans under KRW 50,000 will not be taken into account when measuring a person’s credibility. Up till now, any loans that are more than three months overdue have been directly reported to the Korea Federation of Banks. For credit cards and other forms of installment plans, any loans over KRW 50,000 that were overdue have been reported. The records of overdue loans would directly affect the credibility rates, which at times make it hard for people who are on frequent loans to borrow more money from the legitimate financial institutions.
Starting from December, the overdue records of under KRW 50,000, regardless of the overdue period, will not be reported. It will not be counted towards the individual’s credibility assessment. This is seen as a rather positive change for the lower and the middle-income class that rely on frequent loans. If the small amounts of overdue keep piling up, it might be very difficult to get more loans in the future especially when trying to take out larger amounts for purposes such as buying or renting a house.
On the other hand, there are those who express anxiety over such change. As it is one’s responsibility to pay back the loans on time, the morality of responsibility might come into question. If all the records are cleared, some people argue that it would not be fair to give the same treatment as those who have never had any overdue loans.
After the implementation of the new fiscal policy, it is expected that about 10,000 data would be deleted. The Credit Bureau would raise the credibility status for those who only have overdue loans of less than KRW 50,000 as the same level as those who do not have any loans. Overall the anticipated effect is rather positive as it would give more chances for those borrowing smaller amounts to sustain their living a broader chance to expand their economic welfare.