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If the volume of funds released exceeds the payment capacity of the borrower, Even if there is an intention to pay, financial imbalance can lead to default, undermining the confidence that underpins the credit system. When this happens on a large scale, the financial system itself is put at risk. Therefore, the release of funds must comply:

• The use that will be made of the resources;
• The guarantees offered in return;
• The borrower's ability to honor their financial commitments.

Failures in analyzing and granting credit jeopardize the financial health of institutions and cause serious difficulties for borrowers - whether it's the inability to remain active in the credit market because of their default, or the social and even health problems that the over-indebtedness causes. The impacts also affect third parties: since the account of the operation has to be positive, good payers end up being penalized because of bad payers.

In the credit market, information is the key word. However, information is only valuable if it is of high quality, up-to-date and comes from more than one source. In order to carry out a correct credit analysis and risk assessment, these conditions must be present. And in a market as dynamic and competitive as ours, information needs to be easily and quickly accessible to interested parties.

This is where credit bureaus play a key role. By managing complete and constantly updated databases - which facilitate the analysis and granting of credit - credit bureaus make this process fairer, faster and more accurate, also because they are neutral with regard to lender and borrower. By providing interested parties with relevant information for credit analysis from multiple sources, they end up contributing to what is known as conscious credit or responsible credit.

By making the borrower's credit score available, the bureaus benefit good payers, enabling them to obtain interest rates and payment terms that are appropriate to their financial condition. On the other hand, they help minimize defaults. Low credit scores can lead to credit being refused, preventing people and companies from taking on debts that are incompatible with their ability to pay, which leads to default and potential over-indebtedness.

In Brazil, over-indebtedness is a serious issue, affecting an increasing number of Brazilians. The ease with which credit services such as payroll loans can be contracted makes people over 55 among the most vulnerable to over-indebtedness, according to the Over-indebtedness Commission of the Consumer Defense Center (Nudecon).

Data from credit bureaus show that default affects around four out of every ten Brazilians. This phenomenon involves consumers from various age groups, especially between 30 and 40 years old. In this age group, the percentage of people in default reaches almost 50%. What explains this high incidence is the fact that this stage of life tends to concentrate a series of new financial commitments, such as the purchase of property and the arrival of children.

So what can be done to reinsert this contingent of defaulters into the credit market? An important step has been taken by the Overindebtedness Law, Law 14.181/2021, which establishes differentiated renegotiation possibilities for consumers who are unable to pay their debts without compromising their existential minimum.

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By: Elias Sfeir President of ANBC & Member of the Climate Council of the City of São Paulo & Certified Advisor