How does personal credit scoring work

Scoring & Rating: Procedure for tailor-made credit terms

Risk assessment through scoring - not only in the bank!

The scoring is used to assess risks. For example, some larger German medium-sized companies use scoring in order to be able to assess the payment behavior of business partners or customers in an automated and standardized manner.

However, the rating is used in particular by banks to record the risks of a borrower as objectively as possible. The rating process is also relevant for insurance companies - the aim is to assess risks and adjust the premium for the relevant insurance product.

Credit scoring at banks

Scoring is an important method for companies and financial institutions to minimize or better assess risks. The rating summarizes the probability of default and thus the creditworthiness - the creditworthiness - of a business partner.

As part of a credit scoring, the creditworthiness of a person is examined in order to finally assign a credit score to the possible borrower. Both personal characteristics, such as occupation, marital status, Schufa information, etc., as well as an assessment of the economic circumstances (disposable income per month, assets or debts, etc.) are included in the credit scoring. The loan processor may also have the option of incorporating his own experience with regard to the customer relationship into the scoring.

All information is taken into account in the credit rating and results in a credit score that allows an assessment of the borrower's creditworthiness that is as "neutral" as possible.


Advantage of the rating: standardized and still individual

For a customer, the advantage of scoring is that he receives individual credit terms for his future payment obligations. In addition, the scoring helps to ensure that the personal opinion of a clerk is not the most important factor when assessing creditworthiness and thus when granting a loan. Thus, the scoring ensures a more objective assessment of the creditworthiness of partners in business life.

The bottom line is that the rating is a good indication of the creditworthiness of business partners and customers. With the automated and standardized scoring procedure, credit inquiries from new customers can also be processed more quickly and easily than was the case with the classic credit check procedure. This is particularly noticeable with online loans, where you usually receive a credit decision within 48 hours.

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Important documents for scoring

The scoring is determined based on the available data. It is therefore important for objective scoring to always bring relevant information up to date or to keep it up to date, such as annual financial statements or the business plan, qualifications of the managing directors or founders, etc. As a start-up you can regularly review and correct your current financial situation, by the way, make a significant contribution to good scoring.

The most important information for determining your rating is the documents you provide as a start-up. These documents have a significant impact on your scoring, regardless of whether the scoring is carried out by a bank, insurance company or a future business partner.

In addition to the self-assessment, which your bank uses for scoring, for example, the scoring documents also include information from the so-called credit agencies, which carry out a separate assessment of your creditworthiness in the form of a rating. The credit agencies provide information on the contractual loyalty of existing contracts with banks, telecommunications providers, mail order companies and trading companies. Of course, you must give your consent for information to be given.

Danger! Here, too, to ensure a fair assessment of your scoring, you should check whether all credit-relevant data is up to date. For example, repaid loans should be deleted from the credit agency after three years!

Business start-ups as a risk factor in rating

The main goal of scoring is to assess creditworthiness. As mentioned, personal and economic factors are included in the rating. The economic factors also include the question of what the prospects are for the respective project with which the loan is to be financed - in your case, for example, starting a business. Since this question is very difficult to answer, especially in the case of business start-ups, business start-ups usually do not get a really good credit score, as there is a relatively high level of economic uncertainty as to the economic prospects for business start-ups.

At the same time, this also means that start-ups usually have to accept a significantly higher interest rate. To counteract the "uncertainty", founders can deposit collateral for the loan. This can be in the form of assets (real estate, securities etc.) or as a guarantee. As a rule, a guarantee is a useful instrument for a positive credit decision Guarantees are offered in particular by guarantee banks.

Account movements help the bank with scoring. Learn how to find the right business account.

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Criticism of the scoring procedure

In the scoring process, the lack of transparency is repeatedly criticized. In particular, the consumer advice centers see a disadvantage for financially weak borrowers when scoring the banks, as they have to pay higher interest rates if the scoring is poor.

The point of criticism about the rating - primarily at banks - also aims at the weighting of the factors influencing the scoring. Furthermore, according to some consumer advocates, it is not always clear which factors are actually included in the scoring.

Another point that makes the scoring process appear problematic is the reference to the soft factors, such as residence, age, marital status or level of education. In the case of residence, for example, it is statistically determined how many debtors live in your area and what their payment behavior is. Despite the scoring criticism, the case law is actually clear. All companies that use scoring must provide information about the structure of their rating process.

Positive for the scoring: Well prepared for the bank interview

To come to the point: there is no standard scoring at banks. Depending on the weighting of individual factors and the inclusion of possible soft factors, the scoring of a business start-up at two different credit institutions can also differ significantly from each other.

In any case, it is clear that you can significantly increase the chances of better scoring through an optimally prepared bank interview. You can usually score with a well-developed business and financial plan, all the necessary documents and a professional appearance. As a preparation, it is usually also a good idea to request your scoring from a credit agency so that you do not experience any negative surprises during the bank interview.

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Author: Für-Gründer.de editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.