The Positive Side of Name Negation: A Necessary Approach to Credit and Society

A negative credit rating is a record of default, i.e. non-payment of a debt. This record is made at the request of the creditor and entered in the default registers managed by the credit bureaus, after prior communication to the debtor.

Negative registration is an essential tool in the credit market, guaranteeing the integrity of transactions and benefiting the various players involved. Let's explore the specific benefits for borrowers, lenders and society.

Benefits for the Borrower

When a borrower is denied credit, they receive an alert about their financial situation. This notification informs them of any outstanding debts, but it can also serve as a much-needed wake-up call for them to seek a better understanding of their finances. This pause for reflection is an important step in the journey of financial education. Many people and companies unwittingly end up not paying their credit commitments. Of the people who have received a negative credit rating, around 35% end up paying their debts after being informed of the negative record, as this encourages them to keep track of their bills and not fall further into arrears.

If you look at it from the creditor's point of view, having your name removed, or “dirty name’ as it is popularly known, is a message to the borrower, a sign that the creditor wants to talk. This move paves the way for the debtor to renegotiate their debts. Instead of remaining in a spiral of indebtedness, consumers can seek solutions to settle their debts. The opportunity to renegotiate benefits both the debtor, who resolves outstanding financial commitments, and the creditor, who has a better chance of recovering the amounts owed.

A negative credit rating acts as a powerful incentive for punctuality. Borrowers who are aware that a possible delay could result in a negative credit rating tend to be more careful with their payment deadlines. This practice, in turn, contributes to a more balanced payment chain in the economic system, creating a virtuous circle that benefits everyone.

Benefits for the Lender

Denial can strengthen the relationship between the creditor and the borrower, as it encourages communication and negotiation to resolve outstanding issues. By disqualifying a delinquent customer, the creditor reduces the risks associated with granting new credit, protecting their financial interests. In addition, denial increases the chances of recovering amounts owed, since the consumer is encouraged to pay off their debts in order to clear their name.

Benefits for society

Disqualification helps to promote financial responsibility among consumers, encouraging them to pay their debts on time. This tool, especially if combined with financial education, is fundamental at all times in a society, helping people to deal with financial resources in a sustainable way.

By helping to prevent over-indebtedness, negation plays an important role in maintaining economic stability, avoiding personal financial crises that can have negative impacts on the economy and social well-being as a whole.

In addition, the inclusion of the name in the database of debtors guarantees greater transparency in the credit market, allowing financial institutions to make more informed and fairer decisions when granting credit.

Although name banning can have negative connotations in certain contexts, its positive implications are undeniable. It offers an opportunity for financial education, encourages responsibility and promotes a more democratic and healthy credit market. The key lies in using this tool consciously, ensuring that borrowers, creditors and society all benefit from it.