Credit Defaulters Fall to Pre-Card Crisis Level

The number of credit delinquents has dropped to the level of the pre-credit card bubble in late 2002 as many have recovered their credit worthiness through state-run debt workout programs.

According to the data submitted to the National Assembly by the Ministry of Finance and Economy Sunday, credit defaulters stood at 2.7 million as of the end of June, down 91,000 from late last year. The number peaked at 3.72 million in 2003, sharply up from 2.63 million in 2002. Then, it gradually fell to 3.61 million in 2004, 2.97 million in 2005 and 2.79 million last year.

A ratio of credit delinquents to the economically active population came to 7.7 percent in June as peopled aged 15 to 64 totaled 34.9 million. It is down from 8.6 percent in 2005, 10.9 percent in 2002 and 7.7 percent in 2002.

Following the 1997-98 Asian financial crisis, the then Kim Dae-jung administration eased rules on credit card issuance to prop up domestic spending. Card firms indiscriminately issued plastic to university students and others without properly checking their payment abilities.

But the credit card bubble burst in late 2002, creating millions of credit delinquents. Also, card issuers faced a liquidity crisis because of snowballing overdue card bills and had to be rescued by the government through public funds.

The credit defaulters have been marginalized from social and economic activities because of poor credit records. In 2005, the government abolished the credit delinquency registry, as people on the black list had become a major social problem.

Instead of the credit defaulter registration system, the government adopted a seemingly less harsh scheme conducive to a more sophisticated rating system to give a second chance to the stigmatized people.

Those who had over 500,000 won in overdue debt for three months or more, for example, were registered as ``financial debt defaulters.''

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