Credit delinquency records for 110,000 to be removed

By Na Jeong-ju

The government will delete credit delinquency records for some 110,000 people so that they can borrow from banks and get credit cards.

They became credit delinquents during the 1997-98 financial crisis after providing surety for other people’s loans. Many of them repaid the debts, but still have difficulty in using financial institutions due to the records.

The government will also write off their remaining debts and expand credit recovery programs for them.

Unveiling these measures Tuesday, the Financial Services Commission (FSC) said many people are still receiving a lot of disadvantages just because they were credit delinquents in the past.

“The number of credit defaulters soared following the financial crisis in late 1990s and the credit card bubble burst in early 2000s. Many of them had financial sufferings only because they shared liability for loans to their friends and relatives,” an FSC official said.

The measures came after the FSC decided to abolish the co-surety system last week. Borrowers have used the system to borrow money beyond their credit limit.

“We hope the measures will stabilize their livelihoods and help them regain confidence,” the official said.

The number of credit delinquents jumped to 2.3 million after the financial crisis. The corresponding figure was 1.4 million just before the disaster.

The credit card bubble burst also created some 1.2 new credit defaulters. About 520,000 of them recovered their credit rating through a government-initiated debt-rescheduling program, but the remainder still has credit problems, according to the FSC.

The measures are part of the Park Geun-hye administration’s efforts to encourage people to spend more money. It believes such credit recovery programs will boost consumption.

In March, the administration launched an institution tasked to buy debts from households at default risks in March. It plans to write off part of their debts, using taxpayers’ money, and reschedule the remainder. The money, which policymakers call the People’s Happiness Fund, is similar to a bailout fund given to cash-strapped companies during economic hard times.

The FSC said more than 100,000 people have so far applied for the debt write-off program.

Korea’s private consumption growth has remained low due to a combination of structural problems, including slow income growth, heavy household debt and widening income inequality.