When applying for a bank loan in Germany, applicants need to provide their SCHUFA rating. If an applicant’s SCHUFA rating is too poor, the bank loan may not be approved. A poor credit rating can also affect everyday life, such as applying for a mobile phone contract or a credit card. Personal credit ratings therefore matter a great deal in Germany. This article explains what Germany’s credit rating system is, and which behaviors affect an applicant’s credit rating in Germany.
What Is SCHUFA
SCHUFA, in full Schutzgemeinschaft für allgemeine Kreditsicherung (the General Credit Protection Association), is Germany’s personal credit record. It records an individual’s credit data, assigns a personal credit rating, and provides a certificate of that rating. SCHUFA is provided by Schufa Holding AG, Germany’s only such agency, playing a role similar to credit bureaus such as TransUnion elsewhere. Around three-quarters of Germans currently have their own SCHUFA rating.
How to Obtain a SCHUFA Rating
Simply opening an account with any bank in Germany generates a SCHUFA record, regardless of whether you are inside Germany at the time. For example, opening an account with Deutsche Bank from outside Germany will also generate a SCHUFA record. Alternatively, you can register directly on the SCHUFA website, though this requires a monthly fee. You can also ask SCHUFA directly for the data it holds about you. Under Article 15 of the EU General Data Protection Regulation (GDPR), you are entitled to a free copy of your personal data (in German, a “Datenkopie”), and a later request is also free unless it is excessive. This free data copy is different from SCHUFA’s paid credit-report products, which are sold separately on its website.
SCHUFA website: https://www.schufa.de/
What Data Does SCHUFA Include
SCHUFA is really just a rating of personal credit, but the rating is the result — an applicant’s past spending and borrowing behavior is the cause. The score describes an applicant’s ability to repay a loan in full within its term. Any spending behavior within Germany or with a German company can feed into this rating — opening a German bank account, applying for a German credit card, or signing up for a German mobile phone contract or a loan can all affect an applicant’s rating. Failing to make a credit card repayment on time, or failing to repay a loan on time, will directly affect an applicant’s credit rating. Because SCHUFA’s service helps other service providers better understand their customers’ spending and repayment ability, reducing the risk of bad debt, many merchants in Germany are willing to work with SCHUFA — requiring, within their own contracts, that consumers agree to share their personal spending and borrowing information with SCHUFA. As a result, personal credit ratings are becoming increasingly important in Germany.
Credit Rating Tiers
A SCHUFA rating is a forecast of a consumer’s future ability to repay, so SCHUFA generally does not give a rating of 100%. The highest rating is above 97.5% (very low risk), and the lowest is below 50% (very high risk), split into 6 tiers.
| Score | Credit and risk level |
|---|---|
| >97.5% | Very low risk |
| 95%-97.5% | Very low to manageable risk |
| 90%-95% | Some risk |
| 80%-90% | Significantly elevated to high risk |
| 50%-80% | Higher risk |
| <50% | Very high risk |
Tips to Improve Your Rating
If you want to improve your credit rating in Germany, we suggest first canceling any credit cards or bank accounts you no longer need. For credit cards you do use, consider lowering the unused credit limit, since the rating process estimates how much credit an applicant could draw on right now, and a large unused credit limit can lower an applicant’s assessed repayment capacity. Also remember to repay on time, and where possible repay in full rather than in installments. Finally, if you need to borrow, when comparing loan terms across banks, make sure the bank will not pull information from SCHUFA, since multiple banks querying an applicant’s record at the same time can affect the applicant’s credit rating.
Have a question about this guide? Leave a comment below, or ask Zagdim directly.
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