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Payment defaults steady during coronavirus crisis

People managed to adjust their spending to fluctuating income, according to one credit ratings agency.

Stacks of unpaid bills have grown larger in many households across Finland during the coronavirus crisis. Image: Henrietta Hassinen / Yle

Contrary to expectations, the coronavirus crisis had only a small effect on the number of people defaulting on payments in Finland during 2020.

The number of consumers with poor credit now stands at 392,200, up from just under 387,000 the previous year.

However, that slight increase of 5,500 means that 2020 has surpassed 2019 as the new record year for payment defaults--following an upward trend that has been growing steadily for more than ten years.

"The number of people with defaults is higher than ever before, but in 2020 it, perhaps surprisingly, grew very little," Ville Kauppi of financial data services firm Asiakastieto told Yle. "It seems that people have mainly managed to adjust their spending, especially if their income has been even more uncertain due to unexpected layoffs or unemployment."

He added that the economic effects of the epidemic on default payments were not seen until the summer.

"The largest increase in the number of defaults occurred in the first quarter [January to March]. The second peak was seen in July to September, when the effect of the coronavirus crisis was becoming a factor. But by the end of the year, the numbers were again very low," Kauppi said.

42,000 people defaulted for first time

A total of 273,000 new payment defaults were recorded during 2020, the credit ratings agency reported. For about 42,000 consumers, this was their first entry on the past-due bills register.

"It is often speculated whether defaults provide sufficient information about a person's current solvency. For two thirds of consumers on the register, the most recent fault notice is less than one year old. So the information is fresh and highlights high credit risks," Kauppi said.

According to a study conducted by Asiakastieto, a consumer's payment default which is less than one year old can be an indication of further defaults.

"It takes a long time to receive a first default notice," Kauppi emphasised. "When it comes, the consumer is often already in a very bad financial place, meaning there are a lot of unpaid bills and with many creditors. Therefore, after the first payment default, there will often be more entries. Entering into a new credit agreement would be detrimental to both the person themselves and the lender. Checking credit information is important whenever credit agreements are made."

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