It has been a long time since attempts have been made to obtain a positive credit register in Finland and it seems that a change in this direction is possible. Most European countries already have such a register in place.
A positive credit register was already mentioned in Finland in 2006, but at that time it was not considered necessary. It was also considered difficult and expensive to maintain.
At present, there is still a so-called negative credit register in Finland, ie registration only applies to payment defaults. Consumer information is documented as information on an unpaid invoice or loan that has already caused a judgment of default and default.
However, over-indebtedness or problems with loans and bills can occur even before payment defaults. The introduction of a positive credit register could help consumers in distress even before the actual payment default occurs.
What does a positive credit mean?
A positive credit record is any information that indicates a person’s ability and willingness to meet their payment obligations. If Finland had a positive credit register, for example, lenders would receive real-time information on other existing consumer loans and income.
A positive credit record gives a realistic picture of the consumer’s payment behavior and thus reveals a willingness to pay not only for these problems.
When the lender is aware of the borrower’s other payment obligations and income, it will be easier to assess whether the borrower will be able to extend the loan responsibly and have a realistic chance of meeting all of its payment obligations.
It would be possible to stop any over-indebtedness even before the credit default entry, which consumes credit information. On the other hand, a single payment default would not necessarily eliminate access to credit once solvency has recovered and the financial situation is sound.
The payment default entry is valid for several years, during which the person’s situation may change significantly for the better.
Already, Good Finance maintains a register that can be considered as a positive credit information register. The register shall be maintained for the persons who have given permission for the processing of their data.
The information is collected from customers of financial companies and Asiakastieto discloses information only to other credit providers and for the purpose of assessing creditworthiness at the time of granting the credit.
The payment default entry will be late
Payment defaults will only appear months after the issue has occurred. As a result, the current negative credit register is lagging behind when it comes to assessing whether a loan will be granted.
In the current fast-paced lifestyle, most credit institutions provide consumer credit almost real-time, so that the consumer gets a loan decision at the end of their loan application. In practice, a loan can be granted within a few minutes of starting a loan application.
Few consumers have the willingness or ability to wait several days for a loan application to be processed, so nowadays, almost without exception, the ability to pay is checked by various technical methods while applying for a loan. Usually, this solvency check means checking the payment default entries.
However, it can take several months, usually up to half a year, to obtain a payment default entry. At its worst, though, a person may still be able to apply for more credit, even if their previous payment obligations have not been met. As there is no record of a default, creditors are not aware of any potential financial problems.
In accordance with good lending practice, credit is not granted to persons who are already in financial difficulties. Nor is it in the interest of financial institutions. However, this can happen when there is a delay in the payment default indication and there is no real-time, positive or negative information on the consumer’s ability to pay.
What does the payment default entry mean?
Default payment means long-term default on payment obligations, ie in practice the invoice or invoices have not been paid.
Just being late does not mean a failure to pay, but is usually a clear failure to pay. In consumer credit, for example, this means that a default is preceded by a district court ruling. In the event of a default judgment, the debt in question may also be taken forward for enforcement.
The default payment entry is valid for 2 to 4 years, depending on whether there are one or more entries and whether the debt is paid in full. New entries will extend the validity period. If the debt is paid, the subscription is valid for 2 years.
Defaults are also commonly referred to as loss of credit. Credit information is checked, for example, when applying for a loan, from an applicant for a rental home or job, for insurance contracts, and even when applying for a telephone subscription. Generally when contracts are made. If an entry is found in the information, it may complicate many of the basic steps.
In addition, bad debit entry and credit loss are associated with a negative social stamp. A positive credit register would completely remove this stamp.
When a positive credit register becomes available, you can change the situation as follows:
- Allows credit to be granted to low-income, well-paid persons
- Encourage consumers to meet their financial obligations by rewarding them
- Do not directly penalize anyone temporarily suffering from payment problems for years that affect everyday life
- Provides real-time information on the solvency of the consumer, financial institutions and other potential entities
- Makes the loan granting process more reliable and risk-free
What prevents the use of a positive credit register?
When a positive credit register has mainly positive features for both the consumer and financial institutions, why has it not yet been introduced in Finland? Arguments for and against have been put forward, and only now have the votes in favor gained more weight.
First, the Credit Information Act currently prevents the sharing of positive credit information. By law, only personalization or disruption information is currently allowed to be stored on credit information, meaning that in practice, only payment disruption information can be stored.
Therefore, a positive credit register will require a legislative change.
Secondly, according to the study, the general attitude towards a positive register has been very negative. In practice, all credit providers should be in favor of establishing and maintaining a positive register.
Nevertheless, many financial companies have been vocal in their support for a positive register and the accompanying safer and more responsible lending that serves both customers and companies.