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CREDIT RATING

Schufa explained: How to avoid the ‘catch 22’ in Germany’s credit rating system

The process of obtaining a Schufa, which is needed for rental agreements, can be confusing and frustrating. We give you the low down on the German credit history system.

Schufa explained: How to avoid the 'catch 22' in Germany's credit rating system
Image: DPA

Of the many documents, numbers and permissions to obtain once moving to Germany, perhaps the most frustrating is the Schufa

In order to enter into most contracts – such as a rental agreement – the person or business you’re contracting with is likely to demand a Schufa certificate – a piece of paper which demonstrates your clear (or not so clear) credit record. 

The problem is getting a credit rating without having entered into a lease, contract or loan arrangement before, meaning that for new arrivals the Schufa can create a ‘catch 22’ situation. 

The system itself can also be confusing in the way it tallies the points. A person who has never missed a payment and should have a spotless credit score will never get a 100 percent rating, no matter how ‘in the black’ they are. 

While even debt experts find the process a little murky at times, we’ve broken down what you need to know about the Schufa system – and more importantly how to get that valuable piece of paper. 

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

Schufa (Shoo-Fa)

Dealing with bureaucracy on a regular basis proves that ‘German efficiency’ is but a myth, but at least the Germans are relatively efficient with their abbreviations.

Schufa is short for Schutzgemeinschaft für Allgemeine Kreditsicherung, which translates loosely to Protection Organization for General Credit Safety. 

And although it may not feel that way when your low Schufa score prevents you from renting a flat or opening up a line of credit, the goal of the organisation is to help – specifically to protect people from themselves and getting into too much debt.

Indeed, while German efficiency may be a myth, Germany’s almost pathological distaste for debt is not. 

What is a Schufa?

When people in Germany speak about getting ‘a Schufa’, they usually are referring to the document which confirms their credit status. It takes into account your previous payment behaviour – i.e. if you’ve missed payments or been in debt before – and then provides you with a percentage score. 

The more marks against your name, the lower the percentage is going to be. As the percentage gets lower, there are more restrictions on the types of contracts and debt arrangements you can get into. 

For instance, loans may come at a higher interest rate, or deposits may need to be higher.  

Image: DPA

A catch 22?

From the outset, getting a Schufa can seem like a catch 22. Technically speaking, in order to get one you’ll need an address. But if you’re in the process of getting an address, you’ll need a Schufa. 

Fortunately, as soon as you register in Germany, a credit rating will automatically be created for you. This means that it exists even if you don’t know about it and if you haven’t rented anything yet. 

There are a few different ways to get a Schufa, with the preferred one dependent on your budget and your time constraints. You are entitled to one free copy of your Schufa per year. 

SEE ALSO: ‘Know your rights’: The advice you need about renting in Germany

This can be done online, however it will take its time to get to you. We don’t know this for sure, but it certainly appears that Schufa Holding AG make this option a little more difficult – and a lot slower – as it doesn’t make them any money.

Just judging by how difficult it is to find on the website, we think this theory holds true. 

If you’re in a rush, you can order online at a cost of between €25 and €30. You’ll be provided with a soft copy which you can print immediately. 

There are also a range of other options which let you sign up and pay a monthly amount, although there appear to be few benefits to this unless you expect that your credit rating will fluctuate regularly (in which case you’ve probably got bigger fish to fry). 

The final option is to visit a bank and pay for them to print it out for you. This is immediate and will cost roughly the same as that above but will be printed on fancy bank paper. In order to do this you’ll need a German ID, or at least a passport and a proof of permission to live in Germany (if you’re from outside the EU).

Most banks will provide this service (because they make money off it) and you don’t need to have an account with them to do so. We know it works at Postbank, Volksbank and Deutsche Bank, with most of the others offering the same service.

READ ALSO: The ins and outs of buying property in Germany

Keep it 100

The points-scoring process for a Schufa is notoriously opaque. It has attracted criticism from NGOs and media sources for its lack of transparency. As we discussed here, movements have been growing to create an open and clearer system.

Advocates of the current system however argue that there is a need for secrecy, given the sensitive nature of the information – and the impact it may have on someone’s life. Either way, campaigns to alter the system are set to continue. 

One of the central mysteries of the system is the way in which the score is actually awarded. For instance, even for those who have paid every bill on time, they will not have a score of 100 percent.

Indeed, it’s not uncommon to have a score in the middle of the 90s even if you’ve got a spotless credit history. 

While this may be frustrating for those trying their best to ‘keep it 100’, fortunately all lenders and landlords are aware of this bizarre quirk, meaning they are not going to penalise you when your score isn’t three figures.

Member comments

  1. I signed on for 2 years with T-Mobile (mobile phone account), paid the first month, after which & to my surprise I received my “Schufa” that declared that I had always paid my debts (which was technically true) (I still pay my monthly phone bill but for Schufa that first month was enough to give me a clean sheet – go figure!) .

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For members

MONEY

Wohngeld: How people in Germany can get help with rising living costs

Many households in Germany could be eligible for increased financial support with their rents and bills from next year. We break down who should apply and how much help they could receive.

Wohngeld: How people in Germany can get help with rising living costs

The cost of living is rising across the board, and nowhere is this being felt more than in the home. For over a year, gas and electricity bills have been soaring and people on low incomes have been left wondering how to make ends meet.

While there is support available for people in this situation, it seems that many households in Germany aren’t aware that they could be eligible to apply for Wohngeld, or housing allowance, to help them with their expenses. What’s more, the amount of money people can get is set to rise at the start of next year.

Here’s what you need to know.

What exactly is Wohngeld?

Wohngeld, or housing allowance, is a form of financial aid for low-income households in Germany. It’s intended to help with the general costs associated with housing, such as monthly rents and utility bills.

Even people who own their own homes are able to get support with their mortgage repayments and building management costs (known as Hausgeld). However, they do have to fulfil certain criteria, like earning under a certain amount per month.

Unlike long-term unemployment benefit, which also includes a stipend for rent and bills, Wohngeld is intended for people who don’t rely on any other form of state support. That could include single parents or people with minimum wage jobs who spend a large proportion of their income on rent.

It means that people on jobseekers’ allowance and students with state loans and grants aren’t able to apply for Wohngeld. 

READ ALSO:

How much money can people receive?

That depends on a range of factors such as where you live, how high your rent is and how much money you earn this month. However, one thing that’s clear is that Wohngeld is likely to rise significantly at the start of next year.

On Wednesday, cabinet ministers voted through proposals from Housing Minister Klara Geywitz (SPD) to hike the monthly allowance by around €190 on average. That means that instead of receiving €177 per month, the average household on Wohngeld will receive around €370 per month starting in January. 

It’s worth noting that Geywitz’s reforms still need to clear a vote in the Bundestag, but with the governing coalition of the SPD, Greens and FDP behind the move, it’s likely that they will. 

The Housing Ministry has also put together an online tool that can calculate the amount of Wohngeld each household is entitled to. At the moment, this still calculates the allowance based on the current rates – but it will be updated if the reforms are passed by parliament. 

Who’s eligible for Wohngeld?

That depends on a complex calculation based on factors such as income, the number of people in a household, the size and location of the property and how high monthly housing expenses are. There’s no straightforward income threshold that people can refer to, which could explain why thousands of households who could potentially get Wohngeld never apply for it.

The best way to check if you’re currently eligible is to use the government’s Wohngeld calculator tool. But as we mentioned above, this is still based on the current criteria and monthly rates. 

As well as hiking the monthly allowance, Geywitz also wants to expand the criteria so more households are eligible for Wohngeld.

At the moment, around 600,000 households in Germany receive Wohngeld. This could increase by 1.4 million to two million under Geywitz’s plans. From next year, people earning minimum wage and people on low pensions are set to be among those who are able to apply. 

READ ALSO: EXPLAINED: When should I turn on my heating in Germany this year?

Sound good – where do I sign up?

In general, the states and municipalities are responsible for handling Wohngeld applications. That means you should apply at the local Wohngeldamt (housing allowance office), Wohnungsamt (housing office) or Bürgeramt (citizens’ office) in your district or city. 

If you’re unsure where to go, searching for ‘Wohngeld beantragen’ (apply for housing allowance) and the name of your city or area should pull up some search results that can guide you further. 

Apartment blocks in Berlin Marzahn.

Apartment blocks in Berlin Marzahn. Photo: picture alliance / Matthias Balk/dpa | Matthias Balk

Alongside an application form, you’ll likely have to submit a tenancy agreement, ID, information on your residence rights and proof of any income or state support you already receive. Other members of your household may also have to submit similar financial information. 

You should also be registered at the address you’re applying for Wohngeld for. 

READ ALSO: Germany to spend €200 billion to cap soaring energy costs

Are there any other changes to Wohngeld I should know about?

Anyone already on Wohngeld, or who receives it between September and December this year, is also entitled to a special heating allowance to help with winter energy costs. This is also set to be given to students and trainees receiving a BAföG loan or grant.

For students and trainees, the heating allowance is set at €345 per person. Meanwhile, the amount given to Wohngeld recipients will vary on the size of the household.

Single-person households will receive €415, two-person households will get €540 and there will be an additional €100 per person for larger households. 

This is likely to paid out in January. 

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