by Sabine Hildebrandt-Woeckel, Euro on Sunday
IIf there is talk of SCHUFA anywhere, everyone in Germany probably knows what it is about. If you want to apply for a loan or buy something in installments, the request to SCHUFA has long been standard. Even those who are looking for an apartment can hardly avoid the Wiesbaden-based credit agency. Without SCHUFA information, there is no apartment. But do we really know the SCHUFA system? “No,” says Birgit Vorberg, who is responsible for credit and debt relief at the consumer center in North Rhine-Westphalia. “Most people cannot imagine how far SCHUFA actually extends into our lives.”
The company sees itself as a service partner for companies and consumers and as an intermediary between the two. Founded in 1927, it has been collecting data on consumers’ solvency ever since. Since 2007, it has then used this to calculate a percentage value that represents the probability of obligations being met: the SCHUFA score. SCHUFA’s contractual partners, who are also the suppliers of most of the data, can now call it up online in practically a matter of seconds. There is actually not just one score, as SCHUFA spokesman Ingo Koch clarifies, but several.
The philosophy behind the SCHUFA business model is very simple: When companies share their experiences with customers, it helps both. Because if you know that a customer is solvent, you can sell him more or more expensive products. And the customer also benefits because he can afford more through installment payments or loans than the account currently allows. Hence the name: Protection Association for General Credit Protection – SCHUFA.
In addition to SCHUFA, there are other credit bureaus in Germany, such as CRIF Bürgel, Infoscore Consumer Data (belongs to Arvato Financial Solutions) and Creditreform Boniversum. They sometimes also take on other financial services such as debt collection and have a much smaller market share than the top dog SCHUFA.
Already 97 percent are rather negative
But as simple and comprehensible as the idea can be, it can have far-reaching consequences for the individual. And this does not only affect debtors, as many believe. SCHUFA, explains expert Vorberg, influences the design of many contracts – right from the start. Those affected, who previously gave their telecommunications provider or an online retailer their standard consent to the SCHUFA query, often notice nothing at all. Who knows that the conditions of the energy supplier are better with others or that the neighbor is allowed to pay on account, but not oneself?
What surprises consumer advocates: Many people don’t care about the topic at all, often even believe that it’s an authority, don’t know their own score – or can’t interpret it. According to Vorberg, she experiences time and again that those seeking advice believe that a score of 90 percent is good. “Even a percentage of 97 can have negative effects.”
What SCHUFA collects
Consumer and data protection advocates do not fundamentally criticize the concept of credit bureaus. The main problem, however, is the fact “that it is not published exactly how a score is composed and which criteria ultimately determine the rating of the creditworthiness,” says Martin Jedwillat, owner of the law firm Advomare in Rostock, which specializes in IT and data protection, among other things.
SCHUFA, in turn, emphasizes that it always acts within the framework of the General Data Protection Regulation (GDPR) and the Federal Data Protection Act and that it meets all legal transparency regulations, sometimes even exceeding them. For example, data on origin, religion, marital status, nationality, employer, income, credit and securities accounts are taboo for SCHUFA.
However, you can save:
General data: Date of birth, gender or number of addresses used in business transactions.
Previous payment disruptions: For example, balance reports from a bank, dunning procedures, enforcement notices or private insolvencies.
Credit Activities: For example, credit card inquiries, granting of credit.
Length of (undisturbed) credit history: How long have credit products been used?
Address data: Only if little personal credit-relevant information is available.
How all the information is weighted in detail, however, is kept silent in Wiesbaden, citing trade secrets, and was also right in this regard in 2014 before the Federal Court of Justice (Az. VI ZR 156/13). The Karlsruhe judges expressly confirmed the right to information as to which personal and, in particular, credit-related data was stored by the credit agency. However, they denied the plaintiff’s right to information on the said weighting of the characteristics and on information on comparison groups. Reason: Business secrets such as a so-called score formula should be protected.
“An absurdity,” Jedwillat thinks, because it means that consumers even unknowingly have a negative impact on their score, for example because they move several times or change their energy supplier and telecommunications company more often. Like other lawyers and consumer organizations, Jedwillat has been trying to shed light on this for years.
The skeptics have had some successes in the past. For example, so-called geodata may only be used in exceptional cases, i.e. devaluations or upgrades because you live in the wrong or right area. Or because you are inquiring about the terms of a loan. If there were too many cases of this in the past, the score dropped – even if it was the customer who had decided against an offer.
Just two warnings
If a score is negative, the reason for this can often be understood neither by the person concerned nor by lawyers. “Many accounts, for example,” says the expert, “can be rated negatively, but also positively if they have existed for a long time and are running smoothly.” The same applies to loans.
Considered individually, individual pieces of information have “no or only a very limited significance,” confirms SCHUFA man Koch. “Dependencies between individual data are particularly relevant from a statistical point of view.”
Nevertheless, individual entries can have catastrophic effects. Many consumers underestimate SCHUFA’s enormous power. Anyone who fails to settle a claim can be devalued under certain conditions. If the claim is not disputed and not paid even after two reminders, the creditor can report this to SCHUFA, which drastically worsens the score. If it stays with the one-off incident, the score will increase again over time, but the entry continues to mean that the conditions for money transactions can deteriorate.
Number of cases disputed
An effect that is particularly dramatic if the negative entry is made incorrectly. “Test.de”, for example, reported on a bank customer whose credit card was canceled without warning and the overdraft facility was canceled. Cause: A collection agency mixed up two names. “Not an isolated case,” emphasizes Maximilian Block, founder and managing director of Advocado, a legal platform specializing in online mediation and advice.
SCHUFA itself claims that only a few mistakes happen – and if they do, they are quickly corrected. It used online forms for complaints and was the only credit agency to use an ombudsman. But consumer advocates find it hard to believe the official figures, which show that 441 valid consumer claims – including 31 legitimate ones – were received last year. “We’ve processed 1,000 cases since the middle of last year alone,” says Block. “Ascending trend!”
To avoid unpleasant surprises, experts recommend everyone to regularly check the stored data, and especially the base score. For this purpose, SCHUFA provides a free copy of the data (according to Article 15 GDPR), which can be requested on the meineschufa.de website. However, only once a year.
EUR 29.95 for tenant information
If you want to check your score more closely, you have to take out a subscription, which costs between 3.95 and 6.95 euros per month, depending on the service. The fact that SCHUFA demands money for this is also a major point of criticism from consumer advocates. In certain situations, according to the expert Vorberg, it is still advisable, for example after moving, when you plan to change telephone provider or energy supplier: “Just to know immediately whether the score will change as a result.”
Apartment seekers should also consider taking out a subscription, because the SCHUFA information, which more and more potential landlords are asking for, costs a lot of money, a whopping 29.95 euros. As part of a subscription, it becomes cheaper or free of charge.
The SCHUFA holding company and its scoring
Designation: SCHUFA is a private-sector credit agency headquartered in Wiesbaden. The company has over 900 employees and generates annual sales of over 212 million euros (as of 2019). According to its own statements, it currently stores data from almost 68 million people and six million companies and processes 169 million inquiries and reports per year. SCHUFA provides its approximately 10,000 contractual partners, including banks, (online) dealers, energy suppliers and telecommunications companies, with industry-specific or individual scores that are calculated on a daily basis. Irrespective of this, there is the so-called SCHUFA base score for every consumer, a cross-industry assessment of a consumer’s creditworthiness. Here, the calculation is made once a quarter based on the data stored about a person at SCHUFA.
Broken down, the percentages mean:
> 97.5%: very low risk
95% – 97.5%: low to manageable risk
90% – 95%: satisfactory to increased risk
80% – 90%: significantly increased to high risk
50% – 80%: very high risk
very critical risk
Which data determine my creditworthiness:
1. Keep an eye on your data: Make sure your SCHUFA data is always correct. If you provide incorrect information, ask for it to be corrected immediately.
2. Always pay all bills on time: This applies not only to loans, but also to mobile phone and electricity bills. It is true that not every delay must be passed on to SCHUFA immediately, because two reminders must first be issued. Nevertheless, experts recommend using direct debit to minimize the risk.
3. Be careful with overdraft facilities: The granted amount has no influence. However, if this is overdrawn and the account is terminated, a negative entry follows.
4. In case of problems, seek dialogue: If the case does arise and you cannot pay on time, actively approach the creditor. In this way, a SCHUFA report can often be avoided.
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Image sources: Leszek Glasner / Shutterstock.com, Shutter_M / Shutterstock.com
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