WHAT IS SCHUFA: A Beginner's Guide to Germany's Credit Reporting System
SCHUFA is a credit reference agency based in Germany. It is one of the largest and most well-known credit reference agencies in the country, with a database containing information on over 67 million individuals and 5 million companies. SCHUFA's primary function is to provide information to lenders and other credit providers to help them assess the creditworthiness of potential borrowers. In this article, we will explore what SCHUFA is, how it works, and its importance in the German credit market.
What is SCHUFA?
SCHUFA is an abbreviation for Schutzgemeinschaft für allgemeine Kreditsicherung, which translates to "Organization for general credit protection." It was founded in 1927 by a group of German banks and financial institutions. The purpose of SCHUFA was to create a centralized database of credit information to help lenders make informed decisions about who to lend money to. SCHUFA operates as a private company, although it is subject to regulation by the German Federal Data Protection Act.
SCHUFA is a private company based in Wiesbaden, Germany, that collects, stores, and processes data on individuals' financial behavior. It operates as a credit bureau, providing credit reports to banks, financial institutions, and other businesses to help them assess the creditworthiness of potential customers.
SCHUFA's primary role is to help businesses manage the risk of lending money or extending credit to individuals. By providing credit reports that summarize an individual's financial history, SCHUFA enables businesses to make informed decisions about whether to approve or deny a credit application.
SCHUFA's services are widely used in Germany, with approximately 90% of all credit decisions relying on SCHUFA data. It is important to note that SCHUFA is not a government agency, but a private company that operates independently.
How does SCHUFA work?
SCHUFA collects information about individuals and companies from a variety of sources, including banks, credit card companies, telecommunications providers, and public records. The information collected includes:
- Personal information, such as name, date of birth, and address
- Credit history, including details of loans, credit cards, and other types of credit accounts
- Payment history, including whether payments have been made on time or not
- Public records, such as court judgments, bankruptcies, and foreclosures
All of this information is used to create a credit report for each individual or company in SCHUFA's database. This credit report includes a score, which is used by lenders to assess the creditworthiness of a potential borrower. The SCHUFA score ranges from 0 to 100, with a higher score indicating a lower risk of default.
In addition to providing credit reports to lenders, SCHUFA also offers a variety of other services. These include:
- Identity verification, to help prevent fraud
- Debt collection services, to help lenders recover unpaid debts
- Fraud prevention services, to help prevent identity theft and other types of fraud
Functions of SCHUFA
SCHUFA's main function is to collect, store, and analyze data on consumers' creditworthiness and financial behavior. It receives information from its member companies, as well as from public sources such as court records, insolvency registers, and government agencies. SCHUFA's database contains information on consumers' identity, address, employment status, income, assets, liabilities, credit history, payment behavior, and legal disputes. SCHUFA uses this information to create credit reports and scores, which it provides to its member companies upon request.
SCHUFA's credit reports contain a summary of the consumer's credit history, including their outstanding debts, payment behavior, and any legal disputes or insolvencies. The report also includes the consumer's SCHUFA score, which is a numerical value between 0 and 1000 that represents their creditworthiness. A higher score indicates a lower risk of default, while a lower score indicates a higher risk. SCHUFA's scores are based on statistical models that consider various factors such as the consumer's age, income, employment status, and credit history. SCHUFA also provides alerts to its member companies when a consumer's creditworthiness changes significantly, such as when they apply for a loan or miss a payment.
SCHUFA also offers services to consumers, such as access to their credit reports and scores, dispute resolution, and identity theft protection. Consumers can request a free copy of their SCHUFA report once a year, as well as purchase additional reports or scores for a fee. If a consumer finds an error in their SCHUFA report, they can dispute it with SCHUFA and request a correction. SCHUFA must investigate the dispute and inform the consumer of the outcome within a certain timeframe. If the dispute is resolved in favor of the consumer, SCHUFA must update their report accordingly.
Why is SCHUFA important?
SCHUFA plays a crucial role in the German credit market, as it provides lenders with the information they need to make informed decisions about who to lend money to. Without SCHUFA, lenders would have to rely on other sources of information, such as bank statements and tax records, which are less comprehensive and less reliable than the data provided by SCHUFA.
For borrowers, having a good credit score is essential, as it can determine whether they are able to obtain credit and at what interest rate. A high credit score can result in lower interest rates, while a low credit score can result in higher interest rates or even a rejection of the loan application. Therefore, it is important for borrowers to maintain a good credit score by making payments on time and avoiding defaulting on loans.
However, there have been concerns raised about the accuracy of SCHUFA's data and the impact it can have on individuals' ability to obtain credit. In 2018, a German court ruled that SCHUFA must delete negative information about individuals if the information is more than three years old. The ruling was based on the argument that outdated information can unfairly impact an individual's credit score and ability to obtain credit.
In addition, there have been concerns raised about the transparency of SCHUFA's scoring system. Critics argue that the scoring system is too opaque, and it is difficult for individuals to understand how their score is calculated. This lack of transparency can make it difficult for individuals to improve their credit score and can lead to a lack of trust in the system.
When You need a SCHUFA Report
There are several situations in which you may need a SCHUFA report. Here are some of the most common scenarios:
Applying for credit: If you are applying for a loan, credit card, or other type of credit, the lender will typically request a copy of your SCHUFA report to assess your creditworthiness and decide whether to approve your application.
Renting an apartment: In Germany, many landlords require a SCHUFA report as part of the rental application process. This is because they want to ensure that tenants have a good credit history and are likely to pay their rent on time.
Opening a bank account: Some banks may require a SCHUFA report as part of the account opening process, especially if you are applying for a credit line or overdraft facility.
Applying for a job: In some industries, employers may request a SCHUFA report as part of the hiring process, especially if the job involves financial responsibilities or requires a high level of trust.
Verifying your own credit history: Even if you are not applying for credit or other services, it can be useful to obtain a copy of your SCHUFA report to ensure that the information it contains is accurate and up-to-date. This can help you identify any errors or fraudulent activity on your credit report and take steps to correct them.
It's worth noting that in some cases, the specific type of SCHUFA report required may vary depending on the situation. For example, if you are applying for a mortgage, the lender may require a more comprehensive SCHUFA report that includes information about your income and employment history.
When you buy a house in Germany, you will for sure need a SCHUFA report to qualify for a loan. However, this circumstance, the loan provider will most likely be paying for and handling the report.
How to Receive a SCHUFA Report in Germany
If you are living in Germany and want to get a SCHUFA report, you can do so by following these steps:
Visit the SCHUFA website
Go to the SCHUFA website and find the ‘datenkopie’ page. Use the “Kostenlose Datenkopie” for the limited free SCHUFA report copy or “SCHUFA-BonitätsAuskunft” (SCHUFA Credit Report) for the full report.
Keep in mind the free copy (Kostenlose Datenkopie) may be slower than the report with a fee. If you need your SCHUFA report fast, use the “SCHUFA-BonitätsAuskunft” (SCHUFA Credit Report) and pay the €29.95 fee.
Fill out the form
Fill out the form with your personal information, including your name, address, and date of birth. You will also need to provide a valid ID card or passport number.
Choose the type of report you want
SCHUFA offers several types of reports, including a basic credit report, a credit report with score, and a comprehensive report that includes additional information such as income and employment history. Choose the type of report you want to receive and select your preferred delivery method.
Confirm your identity
To confirm your identity, SCHUFA will ask you to answer a series of questions related to your personal and financial history. These questions may include information about your past addresses, previous credit applications, and other financial transactions.
Receive your SCHUFA report
Once your identity has been confirmed, SCHUFA will provide you with a copy of your credit report. The report will include information about your credit history, payment behavior, and any negative entries that may be affecting your credit score.
It's important to note that SCHUFA may charge a fee for certain types of reports, such as those that include a credit score. However, under German law, you are entitled to receive a free copy of your credit report once per year. If you have any questions or concerns about your SCHUFA report, you can contact SCHUFA customer service for assistance.
Here is a guide for how to review what is a good SCHUFA score. Keep in mind that 97.5% is the maximum. No one can reach 100% because of the risk of sudden death, amongst other common risks.
Schufa Score Range | Credit Rating | Meaning |
90-100% | Very Good | Individuals with a score in this range have a very good credit rating, indicating a low risk of defaulting on loans or credit cards. |
80-89% | Good | Individuals with a score in this range have a good credit rating, indicating a relatively low risk of defaulting on loans or credit cards. |
70-79% | Satisfactory | Individuals with a score in this range have a satisfactory credit rating, indicating an average risk of defaulting on loans or credit cards. |
50-69% | Sufficient | Individuals with a score in this range have a sufficient credit rating, indicating a higher risk of defaulting on loans or credit cards. |
0-49% | Poor | Individuals with a score in this range have a poor credit rating, indicating a very high risk of defaulting on loans or credit cards. |
How to Receive a Free SCHUFA Report in Germany
As defined by law (§ 34 Bundesdatenschutzgesetz (BDSG)), all residents of Germany are allowed one free annual SCHUFA report. SCHUFA calls it a “Datenkopie” or “Datenübersicht" (Data Overview.) If you need a SCHUFA report for your landlord, this will contain all necessary information.
See section above on how to receive this for free.
FAQ:
What kind of information does SCHUFA collect?
SCHUFA collects a wide range of information on individuals' financial behavior. This includes:
- Personal information: SCHUFA collects basic personal information such as name, address, and date of birth.
- Credit information: SCHUFA collects information on an individual's credit history, including any loans or credit cards they have taken out, the amount of credit they have available, and whether they have made payments on time.
- Payment history: SCHUFA also collects information on an individual's payment history, including any missed or late payments, defaults, or bankruptcies.
- Inquiries: SCHUFA records any inquiries made into an individual's credit history, including those made by banks, credit card companies, or other businesses.
- Public records: SCHUFA collects information on any public records related to an individual's financial history, such as court judgments or bankruptcy filings.
All of this information is used to create a credit report, which summarizes an individual's financial history and creditworthiness.
What is the role of SCHUFA in the German credit system?
SCHUFA plays a central role in the German credit system, providing businesses with the information they need to make informed decisions about extending credit to individuals. By collecting and storing information on individuals' financial behavior, SCHUFA helps businesses manage the risk of lending money or extending credit.
The use of credit reports is widespread in Germany, and SCHUFA is by far the largest credit bureau in the country. As a
What is SCHUFA in Germany and what does it do?
SCHUFA is a credit reporting agency in Germany that collects and stores information about individuals' credit history, payment behavior, and other financial data. This information is used by lenders and other businesses to assess an individual's creditworthiness.
How do I get a SCHUFA report?
To get a SCHUFA report, you can visit the SCHUFA website and fill out a form with your personal information. SCHUFA offers several types of reports, including a basic credit report, a credit report with score, and a comprehensive report that includes additional information such as income and employment history.
See our section above which explains how to get a SCHUFA report in detail.
How to keep a High SCHUFA score
Pay your bills on time (this is tracked!)
Don’t change bank accounts often
Don’t open too many bank accounts
Limit the number of credit cards you have
Utilize your yearly free SCHUFA report and resolve any information you see as incorrect
How often can I request a SCHUFA report?
Under German law (§ 34 Bundesdatenschutzgesetz (BDSG)), individuals are entitled to receive a free copy of their SCHUFA report once per year. However, if you need to access your report more frequently, you may need to pay a fee.
How long does SCHUFA store information about me?
SCHUFA stores information about individuals for varying periods of time, depending on the type of information. For example, negative entries such as missed payments or defaults may be stored for up to three years, while positive entries such as timely payments may be stored for up to ten years.
How does SCHUFA calculate my credit score?
The exact formula used by SCHUFA to calculate credit scores is not publicly disclosed. However, it is based on various factors such as payment history, credit utilization, and length of credit history. SCHUFA will take all of this information and use a statistical model and internal algorithm.
Can I dispute information on my SCHUFA report?
Yes, if you believe that information on your SCHUFA report is inaccurate, you can dispute it with SCHUFA. You will need to provide evidence to support your dispute, such as bank statements or receipts. SCHUFA will investigate your dispute and make any necessary corrections to your report.
Does SCHUFA share my information with other countries?
No, SCHUFA only shares information with businesses and institutions within Germany. However, if you move to another country and apply for credit, the lender may request a credit report from a similar agency in that country.
Can I Use the Credit Score in my Home Country to Improve my SCHUFA Score?
No type of foreign credit score will influence your SCHUFA score in Germany.
How Much Does a SCHUFA Report Cost?
The cost of a SCHUFA report can vary depending on the type of report you request. Here are the current prices for SCHUFA reports:
- Basic credit report: Free once per year. If you need additional copies, the cost is 29.95 EUR per report.
- Credit report with score: 29.95 EUR per report.
- Comprehensive report: 34.95 EUR per report.
It's important to note that these prices are subject to change and may vary depending on the specific report and service you request from SCHUFA. Additionally, some businesses may offer to provide a SCHUFA report to you as part of their credit assessment process, so it's worth checking with them before purchasing a report directly from SCHUFA.
Does my SCHUFA Score Decrease if I check it?
No, checking your own SCHUFA score does not have any impact on the score itself. This is because when you check your own SCHUFA report, it is considered a "soft inquiry," which is a type of credit check that does not affect your credit score.
Soft inquiries are different from "hard inquiries," which occur when a lender or other business checks your credit report as part of a credit application. Hard inquiries can have a temporary negative impact on your credit score because they indicate that you are actively seeking credit, which may be seen as a risk factor.
However, it's worth noting that frequent credit checks, whether they are soft or hard inquiries, can signal to lenders that you are actively seeking credit, which may be seen as a risk factor. Therefore, it's generally a good idea to only check your SCHUFA report when you need to, rather than doing so excessively or for no reason.
Conclusion
Like most countries, credit scores are critical to being approved for the necessities (phones and bank accounts) to car and mortgage loans. SCHUFA will track almost everything you do with respect to your bills, so be sure to pay them on time. You don’t need to have a high salary to have a great credit score, you only need to be responsible.
