At the latest when taking out a loan, the question arises about your own creditworthiness. The credit rating mentioned in professional circles has a decisive influence on whether you get a loan from the house bank or an online provider – and what is the interest rate in the end. Finally, banks are paying a higher risk of default. So in order to be able to count on the lowest possible interest rates, one should keep an eye on one’s own credit rating.
Factors of creditworthiness
First, a bank checks its personal and economic circumstances – the more regular and higher its income and the lower the liabilities of other creditors, the more likely it is to repay a loan.
When examining personal creditworthiness, the focus is on reliability – professional and professional qualifications, payment reliability and living conditions.
The economic creditworthiness, on the other hand, takes a close look at the likelihood of repayment of the loan.
The lender therefore first asks for information about the employment relationship and the amount of the income. A fixed-term contract has a more negative effect than a permanent employment contract. This is offset by liabilities, such as existing installment loans for the car, the new sofa or ongoing child support payments to separated children.
Living conditions also influence creditworthiness positively or negatively. This includes the housing relationship – property or rent – as well as the question of own children or the relationship status.
The Credit Bureau information
Although there is no legally regulated framework for lending criteria for loans under 750,000 USD: the decision on a positive credit decision is currently mostly the Credit Bureau.Here there is a negative entry, some fail even in otherwise relatively well-regulated conditions.
Credit Bureau (protection association for general credit protection) is one of the largest German credit bureaus. All liabilities that affect the creditworthiness are stored here. If you make a loan application to a bank, it first asks the Credit Bureau.
Data stored at Credit Bureau
Various types of data are deposited with the Credit Bureau. These are:
- Surname, first name, date of birth, gender, place of birth
- current address and previous addresses
Type, purpose and terms of payment of completed transactions
- Loan and leasing contracts including amount and term
- Opening of bank accounts
Different payment behavior
- due and already adequately dunned claims
- Demands for a court decision
Account and credit card misuse and non-use, public directories and official announcements
- Arrest warrant for the delivery of a federal state insurance
- Application for insolvency proceedings
- Submission of a federal insurance
On the other hand, there are no saved jobs and the amount of income.
Classification by credit rating
The bank determines the creditworthiness after completion of the credit check. This ultimately provides information about the probability of default, ie the risk that the borrower can no longer pay his installments. For example, Creditreform provides the values as follows:
|CREDIT||FAILURE PROBABILITY||CREDIT INDEX|
|massive payment delays||–||500|
|hard negative features||–||600|
Freelancers and self-employed
As a special risk group for lending, freelancers and the self-employed are considered. They are, so to speak, the antipole to officials who automatically receive a better scoring by their non-cancellability. Here, there is no regular employment relationship, income sometimes fluctuates considerably and the future order situation is uncertain.
Online loans vs. Bank loans
Even with online providers, the award criteria have gained some weight in recent years. For a long time, it was relatively unproblematic to obtain a loan even if the Credit Bureau registration was negative, but the providers are now examining the inquiries more intensively. Nevertheless, the likelihood of small loans in particular is higher than that of the house bank in that a positive decision is made online.
Another advantage of online providers is the shorter processing time. If the house bank lends it some 4-6 weeks until the loan amount is credited to the account, some online services advertise with a payout within a few days of the decision.
The often more favorable conditions are to be called as third advantage. These are possible because an online institute does not have a branch network with a large number of employees, ie, the own administrative costs are lower.
Tips for improving your own creditworthiness
While there is little influence on employment and income, there are other factors that may well influence credit quality.
Before going to the bank, it is worthwhile obtaining self-assessment and checking the accuracy of the stored data. Many of the deposited information is out of date or simply wrong. However, the bank is unable to assess this error and assesses the creditworthiness on the basis of the present score.
In most cases, the wrong information will only appear if there are already cancellations or if the interest rate appears unusually high. But then it is almost always too late. Until wrong entries are deleted, pass quickly several weeks – the dream house is then possibly gone.
A free service that covers several credit bureaus, offers selbstauskunft.net. On the page you can select the desired institutions such as Credit Bureau Holding or CEG Creditreform Consumer GmbH. The signature of the request is made directly by mouse. The data will then be conveniently and free of charge sent by post to the address entered.
In addition to the comprehensive service of self-information, the Credit Bureau offers a direct service. Here you can apply for information without detouring the Credit Bureau via a form on the Internet once a year. This right to the own information is anchored in the federal data protection law.
If one realizes that some of the entries are faulty, the Credit Bureau offers a consumer service telephone. In Hamburg, there is also a consumer service center.
Make a little debt
No matter whether real estate loan, car financing or small installment purchase via the mail order. Each of these transactions is included in the Credit Bureau, and even with a regular and timely payment of all installment loans, these factors influence the Credit Bureau score, as the frequency of borrowing is also included in the valuation.
Pay bills on time
Arrears of payments have a negative effect on the credit rating if, in addition to the classic first reminder, further payment requests flutter into the house. These are noted in the Credit Bureau and affect the scoring negative.
For a positive credit rating, it pays to always settle invoices within the payment period and to avoid unpleasant reminders. Especially with consumer loans, the demand is usually not long in coming.
Negative information such as affidavits, on-going debt collection or arrest warrants will remain in the credit bureau for three years after the debt has been settled, and personal bankruptcies will not be extinguished until ten years later.
Raise the credit line
The amount of the agreed credit line for the checking account is recorded by Credit Bureau. Since this upper limit is usually linked to the customer’s payment behavior as well as the amount of income, the disposition amount represents an indicator of creditworthiness.
It therefore makes sense to use the maximum amount of the discounting framework (without using it), as this has a positive effect on the rating of the creditworthiness.
Loans and credit inquiries
If several banks make a loan request, their creditworthiness will deteriorate. Such a loan request is stored for one year and is also visible to other banking institutions. Many inquiries within a short period of time have a negative effect on the credit rating.
Here, special care is needed: If you want to compare only different offers, you should advise the bank that this is only a condition request at the Credit Bureau. This gives information about its own credit rating, but has no effect on it.
Most banks provide the loan requests correctly. However, it does not hurt to remind the bank advisor once again.
Avoid frequent bank changes
The Credit Bureau rates the frequent change of checking account or credit card as a sign of negative solvency. The management of different current accounts also has a negative impact on the scoring.
So for the rating, it’s better to only have as many accounts as you really need. However, this applies exclusively to those of daily payment transactions. For day and time deposit accounts, the number does not matter.
When using credit cards, it should also be noted that the installment function has a negative effect on the scoring, as this is also included in the rating.
Rare change of residence
A point deduction in the credit rating is available for people who change their place of residence frequently. Those who stay in one place for a long time increase their creditworthiness. However, there is also a restriction here: Legally, the geoscoring is not prohibited, ie, credit bureaus are allowed to incorporate the living environment in the creditworthiness. If you live in a socially deprived neighborhood, you may be rated more negative than someone from a well-off residential area.
Collateral in the form of assets, real estate or other assets which pass to the bank in the event of a default has a positive effect on the likelihood of a loan being successful. Also, personal guarantees or joint borrowing, which spreads the default risk to two people, increases the chances of obtaining credit even with a moderate credit rating.
Use alternatives to the house bank
As banal as it seems: The house bank knows through the current account every account movement and can make a very own assessment of creditworthiness in addition to the Credit Bureau information. This need not necessarily be negative, but may prove detrimental when compared to a neutral provider.
In addition to their own credit rating, maturity and loan size also play a role in determining the interest rate, which in turn depends on the key interest rate of the Lite Lender. However, in order to be cheap, creditworthiness should always be at the best possible level – not least because a negative valuation can lead to significant personal lifestyle restrictions if the financial scope is reduced. It is therefore worthwhile to influence the factors as positively as possible and not to take a look at self-disclosure when credit cancellations occur.