Schufa explained: How to avoid the 'catch 22' in Germany's credit rating system

Of the many documents, numbers and permissions to obtain once moving to Germany, perhaps the most frustrating is the Schufa. 

In order to enter into most contracts – such as a rental agreement – the person or business you’re contracting with is likely to demand a Schufa certificate – a piece of paper which demonstrates your clear (or not so clear) credit record. 

The problem is getting a credit rating without having entered into a lease, contract or loan arrangement before, meaning that for new arrivals the Schufa can create a ‘catch 22’ situation. 

The system itself can also be confusing in the way it tallies the points. A person who has never missed a payment and should have a spotless credit score will never get a 100 percent rating, no matter how ‘in the black’ they are. 

While even debt experts find the process a little murky at times, we’ve broken down what you need to know about the Schufa system – and more importantly how to get that valuable piece of paper. 

READ ALSO: How one piece of paper holds the key to your future in Germany

Schufa (Shoo-Fa)

Dealing with bureaucracy on a regular basis proves that ‘German efficiency’ is but a myth, but at least the Germans are relatively efficient with their abbreviations.

Schufa is short for Schutzgemeinschaft für Allgemeine Kreditsicherung, which translates loosely to Protection Organization for General Credit Safety. 

And although it may not feel that way when your low Schufa score prevents you from renting a flat or opening up a line of credit, the goal of the organisation is to help - specifically to protect people from themselves and getting into too much debt.

Indeed, while German efficiency may be a myth, Germany’s almost pathological distaste for debt is not. 

What is a Schufa?

When people in Germany speak about getting ‘a Schufa’, they usually are referring to the document which confirms their credit status. It takes into account your previous payment behaviour – i.e. if you’ve missed payments or been in debt before – and then provides you with a percentage score. 

The more marks against your name, the lower the percentage is going to be. As the percentage gets lower, there are more restrictions on the types of contracts and debt arrangements you can get into. 

For instance, loans may come at a higher interest rate, or deposits may need to be higher.  

Image: DPA

A catch 22?

From the outset, getting a Schufa can seem like a catch 22. Technically speaking, in order to get one you’ll need an address. But if you’re in the process of getting an address, you’ll need a Schufa. 

Fortunately, as soon as you register in Germany, a credit rating will automatically be created for you. This means that it exists even if you don’t know about it and if you haven’t rented anything yet. 

There are a few different ways to get a Schufa, with the preferred one dependent on your budget and your time constraints. You are entitled to one free copy of your Schufa per year. 

SEE ALSO: 'Know your rights': The advice you need about renting in Germany

This can be done online, however it will take its time to get to you. We don’t know this for sure, but it certainly appears that Schufa Holding AG make this option a little more difficult – and a lot slower – as it doesn’t make them any money.

Just judging by how difficult it is to find on the website, we think this theory holds true. 

If you’re in a rush, you can order online at a cost of between €25 and €30. You’ll be provided with a soft copy which you can print immediately. 

There are also a range of other options which let you sign up and pay a monthly amount, although there appear to be few benefits to this unless you expect that your credit rating will fluctuate regularly (in which case you’ve probably got bigger fish to fry). 

The final option is to visit a bank and pay for them to print it out for you. This is immediate and will cost roughly the same as that above but will be printed on fancy bank paper. In order to do this you’ll need a German ID, or at least a passport and a proof of permission to live in Germany (if you're from outside the EU).

Most banks will provide this service (because they make money off it) and you don’t need to have an account with them to do so. We know it works at Postbank, Volksbank and Deutsche Bank, with most of the others offering the same service.

READ ALSO: The ins and outs of buying property in Germany

Keep it 100

The points-scoring process for a Schufa is notoriously opaque. It has attracted criticism from NGOs and media sources for its lack of transparency. As we discussed here, movements have been growing to create an open and clearer system.

Advocates of the current system however argue that there is a need for secrecy, given the sensitive nature of the information - and the impact it may have on someone’s life. Either way, campaigns to alter the system are set to continue. 

One of the central mysteries of the system is the way in which the score is actually awarded. For instance, even for those who have paid every bill on time, they will not have a score of 100 percent.

Indeed, it’s not uncommon to have a score in the middle of the 90s even if you’ve got a spotless credit history. 

While this may be frustrating for those trying their best to ‘keep it 100’, fortunately all lenders and landlords are aware of this bizarre quirk, meaning they are not going to penalise you when your score isn’t three figures.