Explanation of Schufa Scoring

The Schufa score is a scoring value used to determine and communicate the creditworthiness of a loan applicant to the lender in a simple way. The score value is composed of a number of different individual data points and is continuously calculated by Schufa for many people.

Schufa is often criticized for this practice, because many customers do not give explicit consent to the processing of the data, at least not to the extent Schufa as a credit agency processes them. However, its work is explicitly regulated in the Paragraphs §§28,34 BDSG (Federal Data Protection Act). This law explicitly grants the private consumer a right of access to the data collected by Schufa. Consumers can view this data free of charge once a year via a credit report. To obtain information about their exact score value, they must pay a fee. This fee does not apply to the Schufa base score, which is predominantly requested by companies in the context of financing plans.

Schufa receives its information from the partner companies and customers involved with it, as well as public information from authorities and government agencies. A Schufa customer does not have to request a Schufa value to determine creditworthiness, but many lenders prefer this value because it allows them to compare it with their internal risk assessments and thus increase the security of the loan. When concluding a contract, the customer must be explicitly informed about the inquiry; refusal can also be a reason to reject the loan application.

Calculation method and functions of the Schufa score

In a scoring process, here in a credit scoring procedure, various factors are evaluated that affect the probability of repayment for the loan. The aim is to enable companies such as banks or mobile providers to assess whether a potential customer will repay their obligations or whether payment defaults are likely. How the SCHUFA base score and other industry scores are calculated exactly has understandably not been published by the credit agency. This is about protecting its business model. Nevertheless, some aspects can be noted:

• Probability calculation: The SCHUFA score is intended to statistically calculate the probability of repayment for a loan (from a bank, an installment purchase or even a mobile phone contract).
• Score as a percentage: The SCHUFA score is ultimately a percentage value that indicates the probability with which you as a borrower will repay your loan. The higher this value, the more likely you are to service the loan. A value of 100% would therefore be almost a guarantee of repayment, while values of 50–60% already represent a very high risk for banks.
• Characteristics: SCHUFA uses various factors to shape your score. These include positive characteristics such as repaid loans or ongoing mobile contracts and credit cards (if not too many) as well as negative characteristics. These include, for example, loans terminated by the bank, affidavits of insolvency, personal bankruptcies or invoices that were at least twice reminded.

 With a SCHUFA score, a distinction must be made between a SCHUFA base score and a SCHUFA industry score. The former is more of a general estimate and is also made available to you when you request your own data. The industry scores, on the other hand, are a service for partner companies that allows them to assess their customers even more precisely on the basis of this information.

What functions does the SCHUFA score serve?

As a consumer, the credit assessment and scoring may not enjoy the best reputation. If the data look rather poor, it can happen that you do not receive a conventional loan or that a mobile phone contract is denied by the contractual partner. Nevertheless, the SCHUFA score fulfils some important functions:

Protection of consumers

If you as a consumer already have a debt problem, further indebtedness can worsen your situation. Since this is not helpful for any of the parties involved, a credit score can therefore also be helpful for you as a customer.

Protection of companies

If someone wants to take out a loan with a bank, the bank faces a problem: it does not yet know the potential contract partner. Lending money always involves a certain risk. After all, it can happen that the borrower does not settle their obligations. The bank would then be left with the loss. However, the score allows the bank to limit potential losses because creditworthiness can be better assessed using the Schufa score.
In general, it can be said that the SCHUFA score and the scoring systems of other commercial credit agencies are trust-building. Because banks are no longer in the dark, reliable lending becomes possible. A credit check is also obtained when ordering on account.