Personal creditworthiness decides whether a loan is approved or not.
What is behind the term credit scoring and why is the score value so important when lending? What are the factors that determine this value and how can you influence your personal score?
The credit score represents your credit rating. The higher the value, the higher your credit rating and the chance that you will get a loan.
With the help of collected data (including credit query, your previous business relationships with banks, etc.), individual points are awarded. The numerical value of these points, the credit score, is used to calculate the likelihood that you will repay your loan on time. However, this score is not the only decisive factor for a loan approval. Your income and existing collateral, such as owning property, are other factors to consider. A loan decision is always based on this overall rating.
Credit scoring process
When you submit a loan application, the bank first makes a credit query. The bank receives your score from credit. credit calculates your score from the following data:
- Credit activity over the past 12 months and credit usage
- Previous payment problems (delay in credit installments, unpaid mail order or mobile phone bills etc.)
- The length of the credit history (information on how long and at which bank you have current accounts and credit cards)
From this data, a score is calculated for banks and savings banks, telecommunications companies, mortgage businesses, mail order and internet trading. A percentage of 50 to 80 percent means a very high risk, less than 50 percent a very critical risk. Only from a score of 95 percent is the risk of possible insolvency considered low. 90 percent are still considered satisfactory.
Meaning of the credit Score values
- over 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
- Under 50% very critical risk
Please note: The credit score is not the only decisive factor for your credit rating. Ultimately, the bank’s score determines whether you are creditworthy or not. If you have already repaid a loan to your bank without defaults in the past, this will also be considered positively.
No credit with bad score values?
As far as you know, you have no negative credit entries, but your loan application is rejected? Then have your bank explain the reasons for this. The loan decision is often made automatically based on the score values. As a rule, the credit institution will notify you and give you the opportunity to check it. Your loan application will now be checked again by a clerk.
How you can positively influence your score?
You can influence and increase your score values if you:
- Always pay invoices on time
- Regularly check the data stored at credit. You can delete an old current account or a credit card that is no longer used. You can also remove unauthorized entries – this improves your score immediately.
- Don’t overdraw your checking account, overdraft facility and credit card credit line
- Transfer installment payments for loans, credit card bills and purchases to Pump on time
- not allow your credit and overdraft debt to exceed your income
- in the event of financial difficulties, immediately seek a conversation with your bank in order to prevent a credit entry