Creditworthiness: what banks check

Two questions, two sources

Before approving a loan, every bank answers two questions: can this person pay the instalment, and have they paid reliably in the past? The first is answered by your household budget of income and outgoings. The second is answered by a credit reference agency – in Germany primarily Schufa, in Austria KSV1870, in the Netherlands BKR, in Belgium the Central Individual Credit Register of the National Bank, in Italy CRIF, in Spain ASNEF and CIRBE, in France the FICP of the Banque de France. The systems differ, but the principle is the same: existing loans, payment defaults and in some cases the number of enquiries are recorded.

Quotation enquiry instead of loan application

The most important difference for you: a quotation enquiry serves the purpose of comparison and is not visible to other banks; it has no influence on your rating. A loan application, on the other hand, is recorded and, if several are made within a short time, can create the impression that you were rejected. Reputable comparison portals make quotation enquiries only. Only when you accept an offer does it become a contract, which is registered like any other loan.

The purpose of the loan is not transmitted. Neither the credit reference agency nor the bank learns that it is for an aesthetic procedure – it is a personal loan for any purpose.

What counts

Positive factors are a regular income from permanent employment, a probationary period that is over, a fixed address for a longer period and few ongoing commitments. Negative factors are irregular income, many small loans, maxed-out overdrafts and payment defaults in recent years. Self-employed people generally need two to three annual accounts or tax assessments.

A common misconception: the level of income alone is not decisive. A bank would rather lend €8,000 to someone with €2,400 net and orderly finances than to someone with €4,000 net and five ongoing instalments.

Preparation in three steps

Obtain your credit report. In the EU, you have the right to a free copy of the data held about you by the credit reference agency. Request it a few weeks before applying and have any errors corrected – outdated entries are more common than you might think.

Clear up the small stuff. A maxed-out overdraft, a forgotten instalment plan with an online retailer, an old mobile phone contract with an outstanding balance: whatever can be settled beforehand improves your household budget.

Have your documents ready. ID document, your most recent payslips, bank statements for the last few months, and for the self-employed the tax assessment. Most banks request them digitally; those who have them to hand get through faster.

Second borrower

Anyone who narrowly fails the assessment on their own or wants a better rate can add a second person to the contract – a partner or spouse, for example. Both are then jointly liable. This is a serious commitment for the second person and should only be entered into with full knowledge of the amount and term.

If it does not work out

A rejection is not a judgement of you as a person, but the result of a calculation. Ask the partner for the reason, clear up whatever can be cleared up, and wait a few months. Beware of offers "without a credit check" – they are either very expensive or disreputable. A procedure that needs that kind of financing should wait.