How can I improve my credit score?
Basically, the credit score assesses someone's creditworthiness and solvency. The credit score provides information about past payment behaviour so that conclusions can be drawn from it for future payment obligations.
A good credit score is, for example, crucial for the approval of a loan. If you have a bad credit rating due to accumulated debts, you can improve your credit score again if you pay attention to just a few small things. It is never too late to do something.
The most important questions at a glance
In order to improve one's own credit score, it is essential to know how the assessment of such a score works in the first place. The most important criterion for this is personal and economic creditworthiness. Information on the current financial situation and past payment behaviour are included in the assessment. Here, however, the prerequisites differ for banks and suppliers, for example. In contrast to banks, suppliers primarily look at the general payment discipline. They do not enquire about current income and regular payment obligations. These two criteria, on the other hand, are particularly important for a bank before they approve a loan.
German banks are obliged by the German Credit Services Act (Kreditwesengesetz) to conduct regular credit checks. The check is particularly important when it comes to deciding whether to approve a loan.
Banks that grant loans over a term of several years determine the credit rating on the basis of economic analyses.
When you apply for a loan, the bank requires current proof of income and information about regular payment obligations. Within the framework of the credit check, it is ascertained whether the difference between income and expenses is sufficient for the regular payment of the loan instalments. Among other things, living costs and existing assets that could serve as collateral are also taken into account. To find out about the previous payment history, the bank obtains additional information from credit agencies. The information includes, among other things, details about all loans, bank accounts, customer accounts at online shops and mobile phone contracts.
Creditworthiness therefore says something about a person's ability to pay and repay. After the credit check, a credit rating is made, using a rating grade or a score.
The credit decision made by a bank depends on this credit rating. Moreover, it can also influence the interest rate. A higher credit risk may lead to a higher interest rate. Creditworthiness has an enormous impact on purchase or loan agreements and on their conditions.
Online shops will only agree to a purchase on account if the credit check returns a positive result. If this is not the case, only secure payment methods are accepted, usually by advance payment.
Or even when it comes to choosing new tenants for a flat, the landlord's decision is usually based on creditworthiness. Landlords naturally prefer to give the go-ahead to solvent tenants.
Therefore, this issue should really not be taken lightly.
If your credit rating deteriorates due to financial bottlenecks, default action or a collection procedure, then immediately conclude an agreement with the creditor or collection agency and pay off the amount as quickly as possible. This will improve your credit rating step by step back into the green zone.
Get an overview of your creditworthiness on a regular basis. If you need help with this, you can request a free self-disclosure from the various credit agencies once a year.
If you want to improve your score or maintain your already good score, you can pay attention to the following:
- Use only one current account and avoid frequent bank changes.
- Use only one credit card.
- Don't change your mobile phone provider so often.
- When buying online, pay directly if possible, not by invoice or in instalments.
- Always pay your bills on time and avoid unnecessary default action or collection procedures.
- Pay off any outstanding arrears as soon as possible.
- Make sure that there are no incorrect negative entries in your name with credit agencies and have incorrect negative indicators deleted immediately.
- Be sensitive with your personal data and protect yourself from a third party incurring debts in your name.
- Do not stand surety for others.
- Ask the bank to make a condition request, not a credit request, for credit approvals.
- Avoid frequent changes of residence.