What is a credit score?

Credit score

Loans are loans made by a lending institution for use by a borrower, d. H. The person who requests a certain amount of money will be offered. Although the credit process is simple on the surface, there are some situations where credit is a little more difficult to obtain. Many aspects are considered when granting a loan, but the most decisive in germany is the SCHUFA score, which evaluates the creditworthiness of an individual consumer on a scale from 0% to 100%.

The american equivalent of this, and the most widely used score globally, is the FICO score. FICO is an acronym for fair isaac corporation. This uses an algorithm and an analytical database to create a risk assessment for a person's financial behavior when taking out a loan. The FICO score is also known as the credit score, and most international financial institutions issue loans on the basis of this score.

What is a SCHUFA-score?

The SCHUFA score is used in germany and describes your creditworthiness using a numerical value between 0% and 100%. This score is calculated by SCHUFA, a private credit agency. Banks and credit institutions refer to this SCHUFA score as an aid in granting credit. The higher a consumer's SCHUFA score is, the higher his or her creditworthiness, or. His credit rating.

How is the SCHUFA score calculated?

SCHUFA's exact internal calculation method is a trade secret and unknown to the public. However, it is known that SCHUFA refers to personal data and positive and negative financial events of the consumer. This includes, for example, information about bank accounts, credit cards or loans, as well as information about cell phone or leasing contracts and also negative characteristics of the consumer, such as insolvency proceedings.

Accordingly, it goes without saying that for a good SCHUFA score, everything about your financial behavior must be as impeccable as possible. So if you have taken out a loan in the past, you should make your repayments on time to avoid being reported to the credit bureau.

The records of your financial behavior will be deleted from SCHUFA after some time, depending on the type of information that is available. Usually this time is about 3 years.

Where does the data for calculating the SCHUFA score come from??

SCHUFA receives its data from various sources, including both contractual partners and public registers. Contractual partners can be, for example, online stores that report to SCHUFA about customers with problematic payment behavior.

How does the SCHUFA score deteriorate and what are the consequences??

A low SCHUFA score can lead to banks or credit institutions not granting you the desired credit. In addition to a poor repayment history, there are other special situations that can lead to the rejection of a credit application.

A possible situation you should be aware of is frequent credit inquiries. If you apply for credit with multiple banks in relatively short periods of time, it will negatively impact your SCHUFA score.

What is a good SCHUFA score?

A good schufa score is generally considered to be a score above 97%, where the situation looks almost ideal:

  • Installments for previous or current loans are paid on time;
  • The borrower has a positive credit history;
  • The borrower has a balance between income and expenses;
  • The borrower is financially able to repay the loan;
  • The borrower is of an appropriate age for the type of credit chosen.

What can you do to get the best SCHUFA score and get a loan?

It is important to look at things realistically when deciding on a loan. Ask for an amount that suits your needs without over or underestimating. Also, be realistic about the amount of debt you owe, the term of the loan, and the amount of installments you will make.

To avoid affecting your SCHUFA score, you should not make unnecessary credit inquiries with banks.

If your SCHUFA score makes it difficult for you to get a loan, you should consider taking out non-bank loans. Check out offers from non-bank providers and find out if an online quick loan is sufficient for your needs.