What is Schufa? By Valentin Schulte, economist, stud. iur in the team Dr. Schulte attorney, Berlin-Mariendorf
The Schufa-Holding AG is the largest German credit agency, with a special focus on the creditworthiness of people but also companies. The term Schufa goes back to the term Schutzgemeinschaft für allgemeine Kreditsicherung. To achieve this purpose, Schufa collects data and calculates an individual score value from it. Contractual partners can call up this score before signing a contract in order to assess the creditworthiness of their counterpart.
What are the consequences of a negative credit entry?
A negative Schufa entry, for example due to an outstanding payment, leads to a deterioration of the Schufa score and thus often to the rejection of the contractual relationship.
There is a rumor that Schufa probably often knows more about most citizens than parts of their own family. In practice, it can be observed that there is often no way around it when concluding contracts. Although many companies state that obtaining Schufa information is only part of the decision-making process, in practice a bad one is usually an immediate knockout criterion. Companies like to protect themselves via the Schufa-Score and for this reason shy away from the risk of concluding contracts with potentially insolvent employees.
One consequence could be that the employee of the telecommunications provider, after obtaining a credit report, refuses to conclude a contract for a new mobile communications contract that is already in its final stages because of the „poor credit rating“. It is also difficult for those affected to obtain financing or apply for a credit card.
It is not without reason that offers are booming that advertise a „credit card without a credit check“ or an „instant loan without Schufa“. The providers of these offers take advantage of the fact that people with a bad credit history are really excluded from economic life and often cling to any offer that can mean re-entry into society. However, this hardship is usually reflected in the conditions of such offers.
Not infrequently, it can also lead to a vicious circle. A sales representative who urgently needs a car for his professional activity, but who is denied any financing or leasing offers because of his negative credit rating, is now threatened with job loss and further financial losses.
Who benefits from Schufa?
Of course, the facts cannot be presented in black and white. Schufa fulfills an important purpose in our economic system by being able to warn the business community of default risks on the part of contractual partners. It thus also serves to protect the economy as a whole. Nevertheless, there are often entries that, objectively speaking, are hardly recognized as legitimate. What is the point if a person with a good income is not allowed to finance a property because of a cell phone bill that may have gone down in the course of a move? It happens again and again that Schufa entries are erroneous and unlawful and thus have to be deleted. An examination of the individual case by a lawyer often seems to make sense here.
Who owns Schufa?
Schufa thus hovers over consumers and helps decide whether one lives in society or outside of it. The strong position here can also be traced back to the ownership structure of Schufa Holding AG. Schufa Holding AG is primarily owned by banks and retailers, who logically place great value on the information provided by Schufa as „their“ company when concluding their own contracts. Many consumers find this power threatening and also unfair. Is it really proportionate to deny entire real estate financing because of an unpaid cell phone bill? The calculation of the Schufa score, especially by the infamous Schufa algorithm, is a black box for outsiders. Nevertheless, Schufa must also comply with applicable law and may only make legitimate entries. If you are not sure whether an entry complies with the law, you should contact a lawyer who will check the legality and, if necessary, take action against the entry and have it deleted.
Valentin Markus Schulte
Economist, stud. iur
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