There is one thing you just must consider if you have ever considered purchasing real estate in Germany: the Schufa score. We’re going to take a first look at Schufa today, covering its definition, operation, and—above all—the reasons you should be aware of it when you’re thinking about purchasing your first home in Germany.
What is Schufa?
In short, Schufa means Schutzgemeinschaft für allgemeine Sicherung and is, in fact, the leading credit scoring system in Germany. It involves keeping a record of your creditworthiness for use in banks, mobile telephone providers, and other companies regarding your being financially reliable or not.
You would have known that, by letting sanction your loans or mobile phone contract, Schufa plays a role in calculating the risks associated with lending money to you. In case you paid for a long period without missing a single payment for your bills and loans, you could rest assured that your score would say good of it. In case you could not pay some or had outstanding debts, then this was going to affect your Schufa score.
How Does Schufa Work?
Schufa monitors over 67 million people in Germany and answers about 280,000 inquiries from different companies daily. A company can include banks, mobile phone service providers, and other credit-giving organizations request information about an individual. Schufa gathers the payment history, outstanding debts, and even records for credit agreements one may have.
Schufa stores only concrete information. It doesn’t enter private information like your income, job situation, or where you live today. It gathers data like this:
Mobile telephone contracts
Leasing agreements
Open loans
Number of credit and bank accounts
Claims outstanding from creditors
Your Schufa Score: What Does It Mean?
The Schufa score is from 0 to 1000, showing the probability of repaying from the information placed at Schufa. A higher score makes you look much more likely to pay to the creditors. The closer you get to 1000, the more likely you are to repay your loan, and when your score is near 0, you are likely to experience trouble handling financial obligations.
For instance, while getting a loan or mortgage, banks always check the Schufa score of the applicant since that helps to decide the interest rate that would be offered for lending to the customer. Thus, a high score might bring even better deals to you, whereas a low score could result in a higher interest rate and may also lead to refusal of loan in some cases.
Factors That Affect Your Schufa Score
There are many factors which affect your Schufa score. More importantly, they are critical for controlling as well as enhancing the credibility status. They include the following:
Late Payments: Late payments in all loans and utility bills may substantially affect your score. Always pay your bills before time to avoid penalties.
Too many credit inquiries: So many inquiries from creditors may make your account dangerous and thus lower your score. One should not apply for a number of loans or credits within a very short period of time.
Credit accounts and loans: Large number of open credit accounts or loans reveal maximum risk towards defaulting. This debt load one must be careful about and reduce the reliance on loans as much as possible.
Unpaid pending debts: It brings down your score usually, especially in cases that have outstanding debt and claims pending resolution. All negative entries have to be cleared for a healthy record.
Changes in Address: You should not change addresses too often; this may cause an unstable financial behavior signal.
Getting Your Schufa Data
You can access your Schufa data via the following avenues,
Free Data Copy: You are entitled to one free copy of your Schufa data every year at meineschufa.de/en/datenkopie. It also takes time again, and the score of the day or period at the time of access will not be included.
Permanent Access: You pay only a few euros per month to permanently look at your Schufa data. Then, you are able to write down every update and change yourself live.
Schufa Credit Report: If you want a deeper view of your Schufa score, you can buy a one-time report that shows exactly what your score is but also all the information Schufa keeps about you.
Improve Your Schufa Score
A good Schufa score is extremely important, especially when you want to buy a house. Here are some pointers that may help you improve or keep your Schufa score in good standing:
Pay bills on time: this is probably the easiest thing any human being can do to stay at a good Schufa score-paying bills in time. This would depend, of course, on setting up reminders or automated payments so you do not miss the due dates.
Cancel unused credit cards and accounts: have less than open accounts because this is a negative mark against you; close out unused credit cards and accounts.
Deleted Wrong Entries: If your Schufa contains mistakes, you have the right to ask for deletion of those entries. Periodically check that your Schufa data are correct.
Avoid Several Small Loans: Apply for not many small loans because every small loan creates a mark in your Schufa record. You should try to get smaller loans with larger amounts if required.
Avoid Multiple Moves: Multiple moves raise red flags with lenders, and it is best to stay at the same address for a longer period of time.
Negative Entries: If you have bad entries in your Schufa report, try to eliminate them as early as possible. Once the negative entries are deleted, your score should be high and will continue to improve with time as well.
Probably, it is the most crucial factor if you try to finance a house in Germany-with the right Schufa score, you hang in the balance of getting the right interest rate and, in some cases, even being approved for a mortgage. To better fulfill your ownership dreams in Germany, start by learning how Schufa works and take steps to maintain or even improve your score.
Give us a call if you need more information on Schufa, or, if you need support to go through German real estate. We are here for all of you!
