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SCHUFA: How can expats improve their credit score in Germany?

Do I even have a German credit score?

When a new entrant registers at a German address, the Schutzgemeinschaft für Allgemeine Kreditsicherung (the General Credit Protection Agency) creates a credit score for you and begins tracking your financial behaviour.

This company, known as Schufa for short, is intended to help individuals avoid accumulating massive amounts of debt – but the information they have on you is used by all kinds of financial institutions incl. companies you have a contract with to determine if you’re going to be a trustworthy person to lend to.

While this may not seem important to anyone who isn’t applying for a bank loan or a mortgage, the information in the Schufa can have an impact on a variety of day-to-day activities in Germany. You’ll probably need it when applying for apartments, and internet and phone providers, gyms, and banks will all do background checks before accepting you as a customer. In other words, the Schufa might be your best friend or your worst adversary in Germany.

Where can I find my German credit score?

To keep track of their credit rating, everyone is entitled to a free copy of their Schufa report once a year. You can obtain this by submitting your information online at meineSchufa.de. To obtain the free version, you must first click the ‘Datenkopie Nach Art. 15 DSGVO,’ so go to the bottom of the home page, click on ‘Datenkopie bestellen,’ complete the form, and upload a scan of your passport or personal ID card.

The hardcopy report will be mailed to you by post and will include some basic information such as the date your Schufa began, the dates you opened bank accounts or signed an internet contract, and your total credit score.

While this is useful for contract applications, most landlords will not accept it to rent a property. This is because it does not contain specific information about your financial history and is solely designed for your eyes.

What counts as a good Schufa rating?

A Schufa rating is given in percentage points from 0 to 100, with 100 being the best and 0 being the worst.

Everyone starts with a ‘perfect’ score of 100, but points can be deducted for things like missed or late payments, failed credit applications, or staying in your overdraft for extended periods.

Depending on your credit score, many lenders will see you as follows:

  • 97.5 and above: Very low risk
  • 95 – 97.5: Low to negligible risk
  • 90 – 95: Satisfactory to increased risk
  • 80 – 90: Increased to high risk
  • 50 – 80: Very high risk
  • 50 and below: Critical risk

In a competitive housing market, a score of 95 or lower may cause landlords to view you as a little riskier alternative, and they may prefer someone with a cleaner financial history.

When your score falls below 90, you may have difficulty obtaining certain contracts or loans, and a score below 80 may be disastrous. So, unless you have a near-perfect Schufa score, it almost always pays to raise your score.

How do I improve my Schufa score?

Building your credit rating is more of an art than a science, but stability and consistency are two of the most crucial aspects.

While expats from other countries may be accustomed to juggling many credit cards or bank accounts, doing so is frowned upon in Germany and is unlikely to benefit your Schufa.

Unless you have a compelling cause to require more, it is better to restrict yourself to one or two credit cards and no more than two or three German bank accounts. Credit card payments should be made on time each month, and you should attempt to prevent having low balances or going into the red in your bank accounts if at all feasible.

Having fewer accounts under your name is a simple method to raise your Schufa score.

A restricted number of accounts can also assist you in keeping track of items like direct debits and other outgoings. It also increases the likelihood that you will utilize your credit cards and other accounts, which is a good thing because having unused cards and accounts can be a red flag for lenders.

Once you’ve got everything set up, try not to switch accounts too frequently, as this can lower your score. The same is true for moving every few months or opening new lines of credit frequently.

Other methods for improving your Schufa score include:

  • Loan consolidation: A larger loan appears better on your credit report than multiple smaller loans, so consolidate your debts wherever possible.
  • Closing accounts, contracts, and credit cards that you no longer require or that are inactive
  • Paying off credit card bills while attempting not to add to them
  • Having improper Schufa report entries removed
  • Addressing any issues that may have an impact on your Schufa report as soon as feasible and requesting that the employer remove its statement to Schufa
  • Adding an overdraft option to your bank account – but only if you keep within its limitations

What else do I need to know?

It’s good making use of the free Schufa reports once a year just to stay on top of your creditworthiness and see if anything is affecting your score. Being denied credit is a guaranteed method to lower your credit score, so you may want to try to improve your score over time before asking for a new credit card or contract.

When it comes to contracts, foreigners should be aware that the standard contract term in Germany is often 24 months. Once you’ve consented to this, it might be difficult to back out, and missed payments can have a significant influence on your Schufa score. To maintain a healthy rating, make sure you understand exactly what you’re signing up for and assess whether you can meet those financial commitments ahead of time.

When looking for a loan or other financial services, it’s also important to understand the distinction between a Kreditanfrage and a Konditionsanfrage. Making a credit request, or Kreditanfrage might harm your credit score because it appears that you are being refused by lenders regularly.

Instead, choose a Konditionsanfrage, or condition request, which will not affect your credit score.