How one piece of paper holds the key to your future in Germany

How one piece of paper holds the key to your future in Germany
A Schufa Holding AG office in Berlin. Photo: DPA
From being able to rent a flat to getting a phone line, a form called a Schufa can be a decisive factor for many. With NGOs calling for the procedure to be more transparent, what exactly is this paper and why is it so important?

For many newcomers in Germany, being able to show a Schufa – a form ordered online that assesses your credit rating at your bank – can be a headache. In order to get a contract for a flat here, for instance, one may need to show this piece of paper.

But one of the Schufa’s requirements is to provide proof of address – and this is where it gets tricky.

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If you can’t show a German ID, the only other option is to submit both a copy of your passport and a Meldebescheinigung – a document which confirms your residence in Germany.

“It doesn’t work if one doesn’t have an address,” a Schufa customer representative told The Local.

To get one’s hands on a Meldebescheinigung, however, one requirement is to show one's current address at the time of application (e.g. a flat rental contract in Germany). This can mean a vicious cycle for non-German newcomers looking to rent a flat: without a Schufa, you might not be able to land a rental contract and without a German address, you can’t get your hands on a Schufa.

But the paper is just as important for locals as it is for foreigners.

Those seeking to get a loan at a bank or pay instalments on a car, for instance, may need to show this document too. And if it reveals a negative rating, it can have a direct impact on people’s lives. Negative ratings could mean that a person is refused a credit loan or only given one at a higher interest rate, for example.

The document essentially assesses a person’s creditworthiness via their previous payment behaviour. Data gathered from one’s Schufa is intended to provide information on the likelihood that the person will be able to pay his or her future bills.

Not to be confused for a credit check (it contains personal data that’s not meant to be passed onto third parties), the Schufa can be ordered online by private individuals.

But this assessment – via a so-called scoring system – is controversial because it uses a secret formula, reported Spiegel Online on Thursday.

Consumer watchdogs argue that people don't really know the exact nature of their Schufa assessment and aren’t able to see in detail how they are given a particular rating.

Schufa Holding AG – Germany’s biggest credit bureau – defends its evaluation method as “business secrets worthy of protection” that are “not to be disclosed to everyone.”

The credit bureau refers to a ruling by the Federal Court in 2014 which dismissed a woman's complaint. The woman had received a negative Schufa rating and demanded to know how the assessment had come come about.

Soon though there’s a possibility consumers may be able to know how their Schufa credit profile is created as NGOs have recently called for the procedure to be more transparent.

AlgorithmWatch and Open Knowledge Foundation aim for Schufa assessments to be more verifiable and have started an initiative called OpenSchufa, reported Tagesschau on Thursday.

The NGOs are calling on citizens to ask Schufa about their information and to share it with the organizations, which can be done anonymously. By collecting as much data as possible, the NGOs hope to find out more about Schufa’s rating procedure.

OpenSchufa will be finananced independently through crowdfunding. Once the data is collected, data journalists at Spiegel and Bayerischer Rundfunk will evaluate it.

While Schufa describes itself as “Germany's leading credit bureau,” it has competitors such as Bürgel or Arvato Infoscore which also rate a person’s creditworthiness via a scoring system.

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