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Credit score: What you need to know

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If you want to take out a loan with a bank, you not only have to be creditable, but also creditworthy. We'll show you what that means for you and what banks pay particular attention to when checking your creditworthiness.

Another term often used by banks to describe creditworthiness is credit rating. Put simply, both phrases mean the likelihood that you will repay a loan you have taken out to your bank.

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What is creditworthiness, when is it checked?

In detail, a positive credit rating or an attributed creditworthiness means that a bank will gladly grant you a loan. For this purpose, the creditworthiness is first precisely determined within the framework of a credit check.

During the credit check, the bank or another lender obtains a comprehensive picture of the borrower's personal creditworthiness. The assessment of solvency is normal for both individuals and companies.

A creditworthiness check is performed in the following situations, among others:

  • You want to take out a loan. (This applies to a consumer loan for a new car as well as a loan a real estate investment).
  • You are applying for a new credit card.
  • You want to sign a cell phone contract.
  • You are applying for a rental apartment.

Important: The query may only be made with "legitimate interest".

In the above and the other scenarios, it is crucial that there must be a "legitimate interest" for a bank or other company to query your creditworthiness.

This measure serves to protect your privacy; after all, a creditworthiness query always represents a not inconsiderable encroachment on data protection law. Sensitive data such as account movements or previous contracts are transmitted to the lender as part of the inquiry.

A "legitimate interest" only exists if you, as a consumer, have indicated your interest in a transaction or in concluding a contract. This may be the case, for example, when placing an order online or when requesting a specific offer.

You can query the evaluation of your creditworthiness

The easiest way to find out your own credit rating is to simply request the data from a credit agency. Such a report must be provided to you once a year free of charge, so you can gain insight into your creditworthiness.

The so-called credit agencies play a crucial role in creditworthiness, because they collect and store data on contracts, financing, dunning procedures and much more information about the creditworthiness of potential borrowers.

Even countries have a credit score: Even if a country wants to take out a loan, the credit score is checked first. Depending on this, the further conditions are determined. The international rating agencies use different grading systems.

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Creditworthiness is crucial in real estate financing

Extensive creditworthiness checks are also a top priority when it comes to real estate financing. From the banks' point of view, many factors play a role, with some points being particularly important.

Criterion 1: What is your income situation?

You must be able to prove to the bank that you have a regular income, which can be generated through permanent employment, self-employment or rental income, for example. However, self-employed entrepreneurs or freelancers have a somewhat more difficult time: In order not to be classified as a risk candidate, you must provide proof of income for the past years.

Criterion 2: How much equity capital is available

The more equity you have to finance the property yourself, the better your chances of getting a loan. The equity ratio should be between 10 and 20 percent of the loan amount.

Criterion 3: Is there collateral for the bank?

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Banks love collateral. If you have savings accounts or unencumbered real estate, for example, this has an extremely positive effect on your creditworthiness.

Criterion 4: Which property is to be financed?

In addition to personal creditworthiness, the characteristics of the property are also important. Classically, properties close to the center in large cities are preferred for financing, while loans for properties in less sought-after areas are more difficult to obtain. However, information about the age, condition and equipment of the property is also taken into account when considering creditworthiness.

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