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Creditworthiness: What influence your creditworthiness has

What is credit rating?

Creditworthiness means - colloquially speaking - creditworthiness. The term creditworthiness comes from the Latin bonitas for “excellence”, and in finance it means in a figurative sense the excellence of a person's financial manners. Behind this is the question of how they are financially, whether the amount of their income and the amount of their expenses are in an economically acceptable relationship, i.e. whether this person knows how to handle money. Your own behavior, such as the reliability of loan repayments, has a great influence on the credit rating, because it allows conclusions to be drawn about a person's creditworthiness.

The influence of creditworthiness on the loan terms offered

The lending bank tries to accurately assess the risk of lending before entering into the contract. In order to check your creditworthiness, on the one hand, it takes its own measured values ​​to hand, and on the other hand, it retrieves certain data about the applicant from a so-called credit agency. On the basis of this information, the bank finally weighs up whether the customer is able to service the installment loan regularly and reliably. The worse the credit check turns out, the higher it rates its own risk and the worse credit terms it offers the customer. In other words: the better the customer's creditworthiness, the better the loan rate offered and vice versa.

The bank uses these criteria to assess your creditworthiness

The details of the methods by which the bank itself draws conclusions about the creditworthiness of a customer are a trade secret. Nevertheless, it can be stated that the following questions, among others, play a major role in any credit check:

  • Where does the applicant live? Residents of highly indebted areas are rated lower.
  • Has he been working for the current employer for some time or does he often change jobs? The duration of the employment relationship also has an impact on the classification.
  • Is the customer still in the trial period or does he have a fixed-term employment contract? Fixed-term employment contracts carry a higher risk of insolvency.
  • What is the income, what are the monthly expenses? Among other things, the bank can use this to determine whether he has the necessary leeway that the loan demands.
  • How many loans does he already have and is he servicing them reliably? From this it can be deduced how he will proceed with new loans in the future.

How SCHUFA & Co. rate your creditworthiness

Credit bureaus are another source for banks to obtain information about the creditworthiness of a prospective customer. Credit bureaus are companies that store information about people's economic activities. The three best-known credit agencies in Germany are SCHUFA, Bürgel Wirtschaftsinformationen and Creditreform.

In order to obtain the relevant information, the credit agencies have concluded contracts with banks and lenders for data transmission. They collect this data, assign it to a person or a company and then create a so-called scoring - also known as a creditworthiness index. Credit bureaus estimate the creditworthiness of the people on the basis of the data they have collected. According to its own statements, SCHUFA alone has around three quarters of all Germans in its file.

This is how your individual creditworthiness score is created

The term scoring refers to an analytical, statistical process with which it is calculated how high the probability is that the applicant will be able to service the loan regularly and reliably. With this, the Schufa provides the lenders with an important tool to better assess the creditworthiness of the customer and thus the risk of lending.

Getting a loan without a credit check is impossible in Germany. Because especially when it comes to large sums, the banks want to make sure that you can service your loan. A credit report is therefore requested with every credit request.

Among other things, Schufa collects data on movements on current accounts, credit cards, installment loans or leasing contracts, including account numbers, loan amounts or terms. In the case of installment loans, for example, it records whether a customer has repaid previous loans on time and how things are currently with their finances. Negative Schufa entries such as a failed loan significantly reduce the likelihood of a loan approval.

Measures with which you can improve your creditworthiness

It is difficult to assess which detailed rules of conduct lead to a better SCHUFA score, since the Schufa does not communicate its criteria. However, some measures almost certainly contribute to a more positive rating of your creditworthiness:

  • Always pay bills on time - reminders and debt collection procedures have a negative effect.
  • Handle credit inquiries carefully: If you are about to compare several loans with one another, make sure that the credit institution does not send a so-called "credit request" to Schufa every time, but only a "credit condition request". Otherwise, the Schufa will assume that you have problems getting a loan with every further request on your behalf - and will evaluate this negatively. If a "request for credit" is made by the lender, Schufa understands that it is only a preliminary request.
  • Cancel superfluous checking accounts and credit cards: It is assumed that the number of checking accounts and credit cards held also has an impact on the credit rating index.

Get SCHUFA information once a year

In order to be able to assess your own chances before applying for a loan, it can make sense to obtain a credit report from Schufa. So you can easily check your own creditworthiness. Information can be obtained from SCHUFA once a year free of charge. However, any further information is associated with fees: For example, if you would like to receive a credit report online, this costs EUR 18.50 once.

Fixed interest rate for everyone with conditions independent of creditworthiness

Conditions that are independent of creditworthiness apply to all customers whose creditworthiness does not reach a certain scoring limit. In these cases, banks only check the creditworthiness to find out whether the conditions for a loan approval are met. The interest rate is then the same for all customers. For customers whose creditworthiness has reached the limit, banks also determine the current lending rates, taking into account the creditworthiness. These are usually higher than the previously advertised interest rate, but here, too, the following applies: the higher the creditworthiness of a customer, the better the terms.