How To Do A Credit Check?

Do you have a client that you want to do a bigger deal with? But you are not sure whether the customer can make the payment? Then you should do a credit check beforehand. This article will show you exactly what you have to pay attention to and what options there are for you.

What does a credit check mean?

The term credit check describes the examination of solvency. When it comes to a credit relationship, the whole thing is also called a credit check. A credit check tells you how likely it is that your customer will be able to make their payment within a certain period.

Who requires a credit check?

In general, every contractual partner can request a credit check. However, it is up to you to decide whether you want to take the exam. But the credit check makes sense, especially with high sums.

Who does the exam?

As a rule, the company that wants to start a contract carries out a credit check.

Where does the data come from for a credit check?

The so-called creditworthiness information is stored by credit agencies and collected accordingly. The credit agencies obtain this data on the one hand from contractual partners and on the other hand from public sources. The contractual partners of the credit agencies include:

  • Collection agencies
  • Banks
  • Credit card organizations
  • Retailers and mail order companies
  • Energy supplier
  • Telecommunications company

Examples of public sources include:

  • Directory of debtors in the local courts
  • Bankruptcy reports
  • Federal Gazette

When is proof of creditworthiness required?

Creditworthiness is required when a legitimate interest. This interest exists, for example, with companies and credit institutions when it comes to large sums. But even with small amounts, such as the monthly mobile phone costs, the provider requires proof of creditworthiness. This is because the contract usually lasts for a longer period. Other providers who require this proof are, for example:

  • Electricity provider
  • Gas provider
  • Insurance provider

Why is a credit check carried out?

As already mentioned above, a credit check is carried out before a contract is concluded. In addition, this test serves as a kind of insurance for the contractual partner. In other words, if the credit rating is bad, the contract will not be concluded for security reasons.

What is being checked?

Different categories are checked. These are:

  • Personal data
  • previous payment history
  • economic conditions

We will show you which data belong to the individual categories in the list below.

Personal data

  • Surname
  • birthday
  • gender
  • address
  • Moving frequency
  • job
  • Marital status

Previous payment history

  • Possible bankruptcy proceedings
  • Collection data
  • Possible entries in the debtor register
  • Has the contract settled all claims?
  • Have there been any payment irregularities?

Economic conditions

  • Information about existing or completed loans
  • Data on ongoing contracts
  • Number of giro and credit cards
  • Homeownership
  • Corporate investments

Relationship between credit checks and credit inquiries

In principle, one does not work without the other. Because if you submit a credit request, a credit check is automatically carried out. Whether the loan is ultimately approved or rejected depends on whether the credit check is positive or negative.

Can you get a loan without a credit check?

This question can easily be answered with no because the credit check is part of the loan applications in particular.

How do banks calculate creditworthiness?

Every bank has different internal criteria, which are, however, subject to trade secrets. Nevertheless, it is the case at every bank that the income and other existing liabilities are part of the test. This means that you have to submit proof of income and bank statements. In addition, the bank always inquires about the economic situation and general payment behavior from a credit agency. In addition, the following is included in the calculation:

  • Movement on the checking accounts
  • Timely repayment of loans or leases
  • Number of credit cards

Ultimately, there is a score. This score shows the Schufa and the respective bank the probability of whether there is solvency or not.

Types of creditworthiness

There are two types of credit rating. Firstly, there is personal creditworthiness, and, secondly, there is economic creditworthiness. We will show you below what these types mean in detail.

Personal credit rating

With a personal credit rating, it is important to consider the personal characteristics of the person examined. This means that the willingness to pay and the reliability of payment are assessed. Therefore, the following factors are checked:

  • Professional activity and qualifications
  • Job security
  • previous payment history
  • Place of residence and behavior
  • marital status

Economic creditworthiness

Economic creditworthiness relates solely to the financial circumstances of the person concerned. The question arises as to whether the financial means are or will be available to settle the bill. Accordingly, the following factors play a role:

  • Salary and income
  • Assets as well as company shares
  • Loans and Existing Liabilities
  • monthly fixed expenses
  • Inventory of accounts and credit cards

Can the credit rating be influenced?

In theory, it is already possible to influence creditworthiness. However, only before the exam and using appropriate past behavior. However, if a bad Schufa entry should have come about, the credit rating cannot be influenced. The only thing you can do is improve your credit rating in general.

Improve creditworthiness

There are a few ways to improve your credit rating. We will show you the options in the following list:

  • You should cancel accounts and credit cards that you are not using.
  • You should always pay your bills immediately or as quickly as possible.
  • You can request a self-assessment annually free of charge and thus have incorrect entries deleted.
  • Avoid lots of small loans. A loan is better.
  • Overdraft facilities, you should generally avoid.
  • You should always pay your debts directly.
  • Your income should always be higher than your expenses.