Credit Check

1. What does credit check mean?

For every credit application and before any credit is granted, the applicant is subjected to a credit check. In this way, lenders determine the creditworthiness and thus the risk of not getting back the money borrowed.

The credit check consists of the creditworthiness check and the credit check. Based on these two, the lender decides whether to grant a personal loan to a borrower and at what conditions (loan amount, term and interest rate.)

2. What does a credit check involve?

Creditworthiness check

Creditworthiness is understood to mean, on the one hand, the ability to conclude credit agreements with legal effect. This requires, in particular, that the borrower be of age.

In addition, it is a question of whether the borrower's economic framework allows him or her to repay the loan on time. In the case of consumer loans, a standardised budget calculation must be made. In addition, the minimum requirements for creditworthiness are laid down by law. Thus, the borrower (in addition to being of age) must also be able to repay the loan including interest within 36 months. If the applicant meets this criterion, a longer repayment period can still be agreed.

With the creditworthiness check, the lender ensures that a possible granting of credit does not lead to over-indebtedness of the borrower. A detailed regulation on this can be found in the Consumer Credit Act (KKG).By means of the budget calculation, the lender meets these requirements and compares the following expenses with the borrower's income:

  • Housing costs

  • Taxes and health insurance costs

  • Existing liabilities registered with the Consumer Credit Information Office (IKO)

  • Non-garnishable part of the income

  • Alimony and/or maintenance payments

  • Costs of commuting to work

These expenses are compared to the monthly income. These can be

  • Salary from main and/or secondary employment

  • Income from rent or leasing

  • Alimony or maintenance

  • Pension income (but not old-age and survivors' insurance)

Credit check

Besides creditworthiness, the second prerequisite for a successful loan application is creditworthiness.

Within the framework of the creditworthiness check, the expected payment behaviour of a borrower is determined. The probability that the borrower will pay the loan amount and all costs incurred (e.g. interest or fees) on time is determined. However, it is not only a question of the willingness to pay, but also other risk factors such as residence status and duration of residence in Switzerland, age, nationality, frequency of changes of residence, etc. The creditors use various sources of information and methods to determine the likelihood that the borrower will pay the loan amount and all costs incurred (e.g. interest or fees) on time.

Lenders use various sources of information and methods to question creditworthiness. In order to check payment behaviour in the past, information from creditworthiness databases of external providers is used. The most important point of contact is the Central Office for Credit Information (ZEK), where all lenders register negative and positive information on borrowers' payment behaviour.

Creditors receive further information from credit agencies such as Intrum Justitia AG, crif AG or Creditreform. Here, information from debt collection offices, debt collectors and existing billers is brought together and a picture of a borrower's payment behaviour is sketched.

With the help of this data and based on statistical analysis methods that evaluate correlations between customer data and historical credit experiences, a lender assesses the creditworthiness of the potential borrower.

3. What happens if the creditworthiness check is unsuccessful?

If the result of a credit check is negative - i.e. if the creditworthiness check or both are negative - the loan will not be approved.

Since the risk attitude of the individual institutions is not openly communicated, no concrete general conditions can be stated at which the credit check is successful.

Rejected credit applications are also noted at the ZEK and made accessible there for two years. Since this has an even more negative effect on the next credit check, applications that promise little chance of success should be avoided.

In order to be able to assess one's own situation as well as possible, it is advisable for borrowers to conduct their own budget check before applying.