If you live in Germany or are planning to move to Berlin, chances are that you have already heard of SCHUFA. Many people have heard about this service, but only few people actually know what it does and what it is intended for.
After reading this article you will be one of the few lucky people, who will know what the SCHUFA actually tracks and how it can affect your life positively or negatively.
What is Schufa?
SCHUFA literally stands for “Schutzorganisation für Allgemeine Kreditsicherung“, which can be translated into English as “General Credit Protection Association”.
Founded in 1927, it was used by the Berlin Municipal Electricity Company as a tool to create and track records of customers, who paid installments on time. These days, SCHUFA serves as a nationwide private database of credit repayments in Germany.
*SCHUFA can actually also create reports about EU foreigners living in the following countries:
Belgium, Greece, Ireland, Italy, Lithuania, Netherlands, Austria, Poland, Sweden, Switzerland, Slovenia, Spain.
Why should you care about SCHUFA?
SCHUFA serves companies, entrepreneurs and private individuals 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.
For example, a bank may not agree to open a current account with an associated credit card if it is concerned that an individual with a bad SCHUFA score would not be able to repay extended credits. If a bank would approve the credit card or a loan in such a situation, it would likely do so with higher interest rates to offset the risk of not being paid back at some point in the future.
Landlords may not take you on at all, as they would be risking of being stuck with a tenant who does not pay at all or not on time bringing along cash-flow problems.
Do you want to rent a furnished apartment in Berlin?
Do you plan to apply for a loan?
Do you plan to buy a new car via financing?
Do you need a landline from the provider Deutsche Telekom?
Do you plan on fulfilling any of the activities above?
Yep, you have guessed right!
You will need to provide a SCHUFA summary (SCHUFA Auskunft) stating that you are a creditworthy individual. If you have a positive SCHUFA score you will stand out from the crowd and be rewarded with better financing terms.
What is a good SCHUFA score?
Your personal SCHUFA score will be tracked from the point when you register for your residence in Germany (Anmeldung) or open up a German bank account.
If you are the type of person who takes on a lot of debt or does not repay loans on time, you can rest assured that your credit score will suffer dramatically. In general, it takes anywhere from three to six years to rebuild your SCHUFA score, even after successfully resolving all past problems.
You should strive to maintain a SCHUFA score of 97 % or better. This way you will not run into problems with the bank or landlords in the future. Generally, a SCHUFA score above 90 is considered to be a good one.
However, you should know that a SCHUFA score of 95 % and below already indicates a certain level of risk to financial institutions, companies offering financing terms for products and of course, most importantly landlords.
How do I keep my score high?
In order to keep your SCHUFA score above 90 % at all times you can follow these recommendations:
- Limit the amount of bank accounts you open up at different bank accounts
- 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.
How to start building a SCHUFA score, when moving to Germany from abroad?
As a foreigner, you should aim to “populate” your record with positive entries by paying your living expenses such as phone bills, electricity and gas bills on time. This habit of paying bills on time, will come back handy to you when you will be able to provide a positive SCHUFA score when applying for a rental apartment or ask for a loan in a bank at a later date.