Commercials from low interest banks are always going well. But if the customer initially has the official loan offer, the terms are usually much worse. The reason: the amount of interest depends mostly on the creditworthiness of the applicant. This is where the private credit comes into play. With the following 9 tips you can optimize your score.
What is in the private credit?
private credit has information about your current contracts, especially if they are related to installment payments. These include, for example, current loans, installments or mobile phone contracts. As soon as you conclude a contract with, for example, a bank, a mail-order company or a mobile phone provider, the respective company will not only ask you to check your creditworthiness with private credit. It also reports to the credit agency immediately the data of the newly concluded contract. At the same time the credit agency (if any) stores hard negative features, such as ongoing dunning procedures, executions, or affidavits. From the sum of the data your personal creditworthiness is determined within the framework of the so-called score, see further explanation below.
What is the score?
The number between 0 and 100 indicates the statistical probability with which a borrower will meet his payment obligations in the future. The higher the value, the better the credit rating of a person. The result is calculated from all available entries – both positive and negative – using a mathematical-statistical procedure. Please refer to the following table for the evaluation of the credit default risk score. private credit score table Score value probability of default 97.5% to 100% very low default risk for a loan 95% – 97.5% low to manageable risk of default 90% – 95% satisfactory to increased risk 80% – 90% significantly increased to high risk 50% – 80% very high risk less than 50% very critical risk
How to improve your private credit score
Now to the actual topic and the question : how can I improve my private credit? With the following 9 tips you can increase your own score. This will give you more attractive terms in the future, for example when you need a loan.
Cancel unused contracts
No longer needed or multiple existing contracts should be discontinued if possible. Because every financial commitment reduces your remaining monthly budget. A lower “available” income increases the potential risk of default on a future loan, which in turn rates the private credit with a lower score. Here are some examples of contracts you should cancel.
second mobile phone contract
- second credit card
- second account
- no longer used mail-order account
- more loans
Conditions – instead of credit request
If you are still in the comparison and selection phase of various offers, you should request from the respective bank no credit request, but a condition request. Multiple credit inquiries at various financial institutions also lower your score. Because it could theoretically be that your application was previously rejected at other banks. The “theoretically could be” enough for a deterioration of your credit rating, unfortunately.
High credit line improves credit rating
A loan with a high sum should improve the private credit Score? That sounds contradictory at first. But a credit line actually has a positive effect on the credit rating. The whole thing is to be understood as follows: If the current account holder applies to his bank for a posting, the bank first checks its creditworthiness. Only if the result of the test is positive will a commitment be made. The trust of the bank signals to the outside that the customer is trustworthy. Another credit factor is the amount of the credit line. Banks set the maximum amount of the credit line according to income. Two to three times the monthly income is still used as a guideline. The private credit draws from the height of the limit, in turn, conclusions on the income of the user.
Tip: Be careful not to overdraw the account beyond the line of credit. Because the bank announces the limit, this in turn has a negative effect. Here it is only about “owning” the credit line.
Bills always pay on time
Also not or late paid bills are noted in the private credit. At the latest when a debt collection procedure has been initiated or a dunning procedure threatens, the accounts receivable should have been settled. For once the information has arrived at the credit reference agency, the later deletion often turns out to be costly. Important to know: the message to the private credit is made by the creditor. This is the person / company that gets money from you.
Tip: Since some creditors – such as mobile service providers – make overly zealous and premature private credit messages, you should as a debtor for arrears quickly contact the creditor. With a friendly solution, the entry can often be prevented.
Avoid installment purchases whenever possible
Buy today, pay in six months, and do it for 0%? Do not touch it if your credit rating is worth it. Because a purchase on installments – no matter how cheap advertising advertises him – is equivalent to a loan, and is therefore reported to the private credit as another payment obligation.
Merge several loans
Again, the motto is: less is more. Each additional loan increases the risk of default on a new loan, thus worsening your “situation”. If you want to take out a loan but you already own one or more old loans, you should take the opportunity to reschedule your debt. Merging several contracts has several advantages:
- You gain a better overview of your own finances.
- You can lower your overall loan rate if the terms of legacy contracts have been worse in the past. This is to be assumed in the current low-interest phase.
- The future risk of default decreases and your credit rating improves as a result.
Correct incorrect entries
After you have obtained a personal information, you should definitely check the data in it. Because sometimes the listing is faulty, or contains no more current entries. If you find the data wrong, you should act immediately. The credit agency is obliged to delete or adjust incorrect entries. If out-of-date contracts are no longer valid, this will most likely also improve your private credit score.
Please note that it may take several weeks for the data to be completely deleted. Hard negative features such as an affidavit remain in the rating even after completion of up to three years.
Residential area affects score
This is the so-called GEO-scoring. The private credit incorporates information on the residential area in the calculation of creditworthiness. If the person lives in a good / prosperous residential area, this speaks for a solid financial basis. In contrast, for example, a flat in a neighborhood with a social focus is classified by the credit agency as negative. Unfortunately, GEO scoring does not depend on the actual financial situation of the person concerned. If this is a paid-up single-family dwelling within a residential area with many financially weaker persons, this can still have a negative effect on the score.
The credit agency assures on its homepage, “with sufficient data situation” to carry out no GEO scoring. However, different opinions circulate in specialist circles about this.
Consistency pays off
The private credit rewards “continuity”. For example, the calculation takes into account how long a person lives in the same place of residence. Frequent removals are considered by the credit agency also from a financial point of view. The same applies if a consumer changes the current account several times. A frequent bank transfer may indicate possible money problems, even if this is not the case.
The fact that a change of bank can in turn be related to a move, which in turn serves to improve the professional and financial situation, does not make this point seem very fair from a consumer point of view.
Conclusion: what do we take with us?
The operation of the credit reference agency is very mathematical. Expressing the probable payment behavior of a person in a single number may seem very effective. However, the calculation is based on many assumptions and contexts, which are actually not checked for objective accuracy. However, anyone who knows how private credit works and what data it stores can actually influence its own situation.