What is SCHUFA? Everything you need to know

What’s a SCHUFA? A frequently asked question in Germany, and for good reason. Most responses you’ll get if you ask will go like this: ‘Something very important’ and ‘Your creditworthiness?’ While not wrong, these answers don’t quite get to the heart of it.‘SCHUFA’ actually refers to a company in charge of producing creditworthiness reports.The full answer to those questions however is a little more complex but will likely provide crucial information for anyone who wishes to enjoy financial freedom in Germany. Read on to find out how. 

Companies, banks and landlords conduct credit checks on prospective customers to find out if they’re risking their business by taking that customer on. The resulting check determines your ability to pay bills and rent on time, loan instalments and even keep up with mobile phone plans. At the end of the check, credit agencies compile your score in a report.One of the best known credit check companies that does this is called SCHUFA Holding AG.   

In German, ‘SCHUFA’ stands for the Schutzgemeinschaft für Allgemeine Kreditsicherung. Loosely translated, it’s ‘Organisation for general credit safety protection’.The data collected by these organisations comes from public sources like the commercial register, the Federal Gazette and the local courts. The network of contractual partners with which the SCHUFA works includes: 

Put simply, the credit check is an investigation into your legal, personal, and financial circumstances. Both positive and negative results of these aspects are taken into account, so if you’ve always made your payments on time, obeyed the law and juggled several large payment plans with ease, you’re on your way to a good (maybe perfect!) SCHUFA score. The results under consideration include:

Your SCHUFA entry is the assessment based on the above results checks, culminating in a percentage that indicates your creditworthiness. Your landlord or whomever has requested the entry will then assess you based on this percentage.

Any person or company who can prove their legally legitimate interest in your creditworthiness is entitled to a SCHUFA report. If there is potential risk for the person or company in the contract, they are then legally entitled to request the report. Typical scenarios include: 

Your SCHUFA entry is the deciding factor in all the scenarios discussed above. The results fluctuate depending on the kind of institution you’re dealing with and with the size of the investment or purchase being made. Banks, for example, will pay very close attention to your results if you’re taking out a loan, because it is a particularly high risk for them. If they determine you to be a high risk client, the bank will increase their interest rates. 

Consistency, punctuality, and reliability are what you should keep in mind if you wish to maintain a high or perfect SCHUFA score. This means that, on the flip side, frequent rental contract changes, a bad reputation with payment plans, multiple maxed out credit cards, and an account regularly dipping into overdraft payments will all contribute to a bad score and limit your financial freedom in Germany.If you need to improve an already poor score, close any unnecessary accounts you have, cancel credit cards you don’t need and avoid dipping into the overdraft account again. In addition, do your best to pay any outstanding bills and gain a reputation as someone who pays future bills on time.