Credit Rating

1. What does "credit rating" mean

The term "credit rating" is derived from the Latin "bonitas", which means "excellence". Credit rating refers to the borrower's ability to borrow as well as his or her credit rating. While credit rating answers the question of whether a borrower is able to repay a loan, credit rating is the probability with which a loan will be repaid.

2. Importance of the credit rating

Creditors must be able to assess and classify their credit risk - the probability of a credit default. Thus, on the one hand, credit rating plays an important role in the granting of loans (whether personal loans, mortgages or business loans for companies). On the other hand, it is also used when concluding contracts that lead to regular costs (credit card, mobile phone contract, online shops, rental flat, ...).

3. Determination of credit rating by means of the credit check

The creditworthiness of a debtor is determined within the framework of a credit assessment. In order to check the creditworthiness, different personal data are collected and combined with statistical models. The determined value leads to a grade or a creditworthiness score (also referred to as "credit score").

Which creditworthiness criteria are taken into account and with what weighting is up to each creditor. Depending on the needs of the creditor, but also depending on the type of debtor, different criteria with different weightings may be important. Rating agencies also determine creditworthiness scores and provide this information to creditors for a fee.

Although information on how exactly the credit score is determined is rarely public, it can be assumed that the following information plays a role depending on the type of debtor.

For natural persons

  • Information on previous credit settlements

  • Income situation (e.g. amount, employer, job security)

  • Spending situation (e.g. rent, loan repayments)

  • Asset situation

  • Debt situation (e.g. loans, liabilities assumed)

For companies

  • Legal form

  • Equity ratio

  • Available cash flow

  • Profit and loss situation

  • Quality of management

  • Corporate planning

  • Investment policy

  • Asset and debt situation

Extensive information that serves as a basis for credit assessment can be obtained from credit agencies. These are privately run companies that pass on economically relevant data about applicants to their business partners. In Switzerland, Crif AG and Intrum are particularly worthy of mention in this context.

In the area of consumer credit, the IKO (Informationsstelle für Konsumkredit) was also founded. Relevant information on personal loans, leasing contracts and, under certain conditions, on credit or customer cards is deposited there. This information is also taken into account in the credit check.

4. Effects of the credit score

When granting loans, the determined score has a direct impact on the credit decision. In addition, the score influences the conditions of a loan, especially the interest rate. Some providers allow loans to be granted only in conjunction with the conclusion of residual debt insurance if the creditworthiness is low.

The credit rating can also have an impact on online shopping. Here, a low score can lead to goods only being delivered against cash on delivery or payment in advance.

5. Credit report

Banks and companies have the possibility to obtain information about the debt situation of persons from the IKO. Consumers can also make use of this possibility.

A self-disclosure can also be requested from private credit agencies in order to view entries that influence one's own creditworthiness.