Bad Credit: What Is It And How To Avoid?
October 23, 2019
Bad loans were reduced by Portuguese banks by 1.7 billion dollars in the first quarter of 2018. However, these figures from the Portuguese Banks Association show that there are still 35.2 billion dollars outstanding in this type of credit. But what does the term “bad credit” mean and what solutions are there for those in this situation?
But what is bad credit?
Bad credit is the financial term given to the amount that a credit holder cannot repay to a financial institution. Sometimes also referred to as “overdue credit”, it thus refers to a situation that arises when households fail to repay their loans and consequently default.
It is very important for families to be able to manage and control their personal finances so that over-indebtedness does not happen. If you find it difficult to repay your debts to the bank, choose to renegotiate the credit or, where appropriate, to consolidate all loans into one.
What risk situations should you be aware of?
According to date from PORDATA, the peak of non-performing loans was reached in 2012, with around 15% of individuals in Portugal in this position. Since then, this figure has been decreasing, reaching 11.8% last year.
One of the main reasons that led so many families to see their bad credit was the triggering of the last financial crisis in Portugal. Reducing wages and even unemployment made the monthly repayments on loans held by unbearable households and consequently led to their indebtedness.
There are still other situations, often unavoidable, that lead Portuguese families to have their bad credit, the most common being sickness, disability or even divorce.
These circumstances that lead to default on debt and therefore overdue credit, may even refer consumers to legal proceedings and may be deprived of their home when there is a mortgage or other property that has been given as bank guarantees. .
Please be aware that if you are in default, you will not be allowed to apply for other debt relief. Firstly, this is not an option to consider as it is just accumulating more debt.
In addition, your name is automatically registered in the so-called Bank of Portugal Black List, and no financial institution can grant you a loan.
What state aid can you get in these situations?
If you are unemployed, you should contact Social Security to apply for unemployment benefit, which can help you pay monthly benefits.
To avoid bad credit and if the reason for the difficulty of payment is illness, you can contact the National Health Service (NHS) for help with reimbursement of medicines and treatments if your health insurance does not cover them.
How to avoid overdue credit?
To avoid overdue credit (or bad credit) the consumer has at his disposal several possibilities.
On the one hand, you can resort to PERSI, an out-of-court settlement between the financial institution and the client. On the other hand, you can talk to the bank and try to renegotiate the credit in question.
If you have more than one loan in your name (eg credit card or car credit), make a consolidation. By pooling all debts in one you can extend the repayment term, reducing the monthly repayment and thus making it easier to rearrange your personal finances.
If you have a mortgage, you can also try to transfer to another financial institution, with the possibility of achieving a more competitive spread or even extending the payment term.
It is important to understand when you are having difficulty paying off your credit so that you can act immediately, as this will only help you to avoid bad credit and situations that lead to the breakdown of your household.