If you’re starting out in Germany or looking to obtain your first mortgage it is likely you will have heard the term “Schufa” mentioned repeatedly. Many people have heard about this service, but only a few people actually know what it does and what it is intended for.
Schutzgemeinschaft für Allgemeine Kreditsicherung (Schufa) is a shorthand term that approximately translates to “general credit protection agency” and is essentially the bureau responsible for producing creditworthiness reports. When people talk about your Schufa score, Schufa report, Schufa rating, and so on, they’re all referring to the same thing: your “Schufa Auskunft”, or the credit information that will accompany you for the duration of your time in Germany.
But what exactly is Schufa? And why is it such a difficult task for newcomers to Germany? This blog post has compiled all of the information you will need to answer all the questions you may have.
What exactly is Schufa?
Schufa is Germany’s leading credit rating bureau and is a private company similar to Equifax, Experian or TransUnion, some of the major credit reporting agencies operating in the US, UK, Canada and Australia.
Schufa calculates your credit score using information from your financial histories, such as missed payments, credit cards, loans, fines, and court judgements. When you apply for a credit card, a new phone, or an Internet contract, companies pay to verify your Schufa score. When you apply to rent an apartment, a rental agent will verify with Schufa also. A poor credit score indicates that you are at a greater risk of missing payments, making it extremely difficult, if not impossible, to obtain credit. A low credit score might also have an impact on the amount of interest you pay on a loan.
Why should you care about your Schufa score or any other credit scores?
These credit scores are extremely important when looking to make any big financial decisions. In Germany, Schufa holds data on around 70 million people, which includes almost everyone in the country who is 18 or older. According to Schufa, about one out of every ten of these people in Germany (around 7 million people) has negative entries on their record.
Schufa collects its data from 9,000 different sources, including banks and telecommunication companies and serves as a way to evaluate creditworthiness of potential customers, in order to stay on the safe side and avoid a possible credit repayment failure.
If an individual or a company is deemed to be a high-risk object in terms of credit repayment abilities, this can have various consequences that many people do not think about such as being unable to purchase a car through finance, open a current account, obtain a credit card or rent property. If you have a positive Schufa score you will stand out from the crowd and be rewarded with better financing terms.
You can be sure that if you take on a lot of debt or don’t pay back loans on time, your credit score will suffer significantly. Even after successfully resolving all previous problems, it can take three to six years to recover your Schufa score. This is why it is vital to remain on top of all credit repayments to maintain a satisfactory Schufa score and to minimise any future problems you may face.
Who can ask you for a Schufa report?
A SCHUFA report is available to anyone who can demonstrate a legally justifiable interest in your creditworthiness. If the person or company in the contract faces a potential risk, they have the legal right to obtain the report. The following are examples of typical scenarios:
- The opening of a personal or commercial current account
- Credit applications
- The end of a rental contract
- Long-term contracts (Internet or cell phone contracts)
- The purchase on account for large sums
How to get your Schufa score?
Your personal Schufa score will be tracked from the point when you register for your residence in Germany or open up a German bank account. As defined by law, any German resident has the legal right to review the data contained in their Schufa score. As a result, you are entitled to at least one free copy every year.
Schufa refers to it as “Datenübersicht” or “Datenkopie.” This free record contains all of the information that landlords require. You can get your free Schufa record here, look for the right column titled Datenkopie and click “Jetzt bestellen”. The next screen contains several fields to input your personal information. You can also upload a copy of your ID card, passport & Meldebescheinigung (residence registration certificate), once all this has been completed, you will receive a paper copy by mail after several days.
A Schufa score of 90 or more is generally regarded as good. You should be aware, however, that a Schufa score of 95% or lower already implies a certain level of risk to financial institutions, organizations that offer product financing conditions, and, most crucially, landlords. It is also important to note that it is impossible to reach 100%, 97,5% is the maximum score you can obtain. Those few percents account for the sudden risk of death, which is unavoidable. Here are some valuable tips in order to keep your Schufa score above 90% at all times:
- Limit the amount of bank accounts you open up at different banks
- Limit the amount of credit cards you own
- Do not switch banks frequently
- If you are able to do so, keep a reserve on your bank accounts at all times to indicate that you have enough liquidity
- Pay your bills before or by their due date
- Check your Schufa score at least once a year in order to know your current level and take corrective actions if needed to improve in the future.
Understanding Schufa when trying to obtain a mortgage can be a very daunting experience. Here at My Mortgage Germany, we hope we have answered all of your questions regarding your credit score in Germany. If you have any further queries, our expert mortgage advisors are on hand to guide expats like yourself through the process so do not hesitate to get in touch with us today.
