Scoring basis for credit decisions

adminonJanuary 28, 2023February 19, 2023Leave a Comment

In principle, just about everyone scores – be it when going to a restaurant or buying a car. Based on past experience or even other people's experience as well as further assessments, we make forecasts for the future and take decisions on this basis.

When credit institutions use scoring to grant loans, they want to achieve something similar: Their goal is to ensure that loans can be repaid. They analyze empirical data on solvency to use it to forecast a customer's likelihood to default. But scoring also comes into play in online trading or insurance companies. For example, a score can also decide whether you can buy online only against prepayment.

Importance of scoring

"Score" in English means as much as number of points. Scoring is a statistical procedure used, for example, to obtain information about the future payment behavior of individuals or companies. It is used by credit institutions, credit agencies such as Schufa and rating agencies. Credit scoring is used for all types of credit transactions and is intended to facilitate fair and objective credit decisions. As part of the credit check, credit institutions determine the score. It lies between 1 and 100. A person seems to be more creditworthy the higher the score number is. 100 percent cannot be achieved, however, as it is impossible to achieve such a high probability in such statistical evaluations. The score value decides whether and on what terms a loan is granted.

Schufa: Basic score versus industry scoring

The best known scoring is the Schufa scoring. A distinction is made between two types of score values: The basic score is given as a percentage in the credit report and is not updated daily. It takes into account the financial actions of each person.

The second type is the industry score, which is calculated on a daily basis. If you order goods on the Internet, for example, you can assume that the supplier will check your creditworthiness – for example, with Schufa. This then transmits to the company the respective Schufa industry score. The percentage value allows this company to estimate how likely it is that the buyer will pay his bill. To become a Schufa contractor, companies must meet many requirements. There are seven different industry scores: mortgage bank (HypoScore), mail order, retail, telecommunications, cooperative banks/savings banks, banks and the Schufa business line.

What data flows in?

The scoring of credit institutions is based on information about the customer, z. B. Personal data or past payment history, and those from credit bureaus such as Schufa accessed. There is no standard scoring procedure, and the calculation of the score remains opaque. According to Schufa, the formula for calculating the score is known to and controlled by the relevant data protection authority and independent scientists.

According to Schufa, important factors for the score calculation are: current account, credit card, guarantee, installment loan, mobile leasing/hire purchase, inquiry about current account, inquiry about credit card, inquiry about guarantee, inquiry about loan, inquiry about mobile leasing/hire purchase, contract and credit periods. Negative impact has non-contractual behavior such as unpaid installments or bills, canceled loans and current accounts with overdraft where outstanding amounts have not been paid, titled and recognized debts, information from debtors' lists and bankruptcy notices, submission of an affidavit, arrest warrant to force the submission of an affidavit.

According to Schufa, however, the following have no influence: Marital status, religion, nationality, salary or assets. Credit obligations do not necessarily have a negative effect. The score can even be better with a current loan than without a loan. However, numerous credit inquiries can have a negative influence. However, the mere request may not be taken into account, which is why Schufa has introduced the feature "condition request".

Consumers can view their score and stored information at credit bureaus like Schufa once a year free of charge and have it corrected if necessary. This is advisable in order not to suffer disadvantages due to incorrect or outdated Schufa entries.

Well, the investment and finance sector is really hard to understand. You have to work really hard to be successful here. This article could certainly help you understand some home mortgage concepts. Further in this article, we will talk specifically about the role of mortgage loan servicers. These loan officers are really very important for you. Buying a home is an essential process of all our lives. So you really need to make an informed decision when it comes to choosing a suitable mortgage loan advisor.

Before we delve further into the topic, let's first understand a few important things regarding mortgage loan officers. Well, mortgage consultants are professionals who are legally trained for this field. You can easily rely on these individuals for your home mortgage options. These professionals will help you secure the best possible deals on home mortgages. They will also help you to reduce the mortgage costs. So we can say that overall they are extremely reliable options for you.

I want to bring to your attention that mortgage servicers really do offer you a number of advantages. A good mortgage advisor makes use of his understanding and skills to offer the most suitable home mortgage that matches a client's private needs and requirements. However, the mortgage loan advisor does not manage the compilation of the loan, and consequently the client would have to contract directly with the banking institution to compile the home mortgage. These advisors usually do not exist in this area on their own.

Below are some of the key benefits of appointing a mortgage loan officer for your mortgage.

1. These consultants moderately care about the needs of their clients. They even constantly support and notify the customer of the preliminary request.

2. Mortgage loan officers take the time to thoroughly understand the client's individual circumstances and goals.

3. These trained professionals provide an unbiased, qualified outside review of home mortgage products.

4. These professionals and advisors can identify the most likely mortgage lender in strange circumstances, preventing the need for numerous credit checks.

Moreover, all these loan professionals offer an expert examination on the housing market together. So, these are some of the essential things regarding mortgage servicers. Make sure you read this article properly before appointing a home mortgage advisor. It could certainly be of some help to you in this field.

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Whether or not the bank will extend your current mortgage depends on your affordability. However, when calculating affordability, institutions do not assume the current record low mortgage rates, but significantly higher interest rates.

You have to use a theoretical interest rate of around five percent and an additional one percent for ancillary costs. For your mortgage of 200,000 francs, you must therefore assume a theoretical cost of 12,000 francs per year. If you currently have a mortgage rate of one percent, that would therefore be six times more.

Based on this figure and your pension income from the pension fund and AHV, you can quickly see how much of a burden a future mortgage would be on your budget and how much financial leeway you would still have if mortgage interest rates were actually to rise significantly again at a later date.

A rapid rise in interest rates was unlikely for some time because of the Corona crisis and the global recession.

Banks use much higher rates when calculating affordability so that there are no defaults later when interest rates spike again. However, interest rates are likely to remain at the historically low level for a long time to come. A rapid rise in interest rates became unlikely for some time because of the Corona crisis and the global recession.

Whether partial mortgage amortization makes sense for you depends not only on affordability, but also on your personal financial flexibility. If you amortize all or part of the mortgage, you save the interest for the bank. So you have a little more wiggle room in your budget.

You probably already have a budget in place with the important expenses. This will enable you to estimate how much of a burden a new mortgage will place on you, and you can also use this when talking to the bank. If you do other business with the same bank, there is a good chance that you will get more attractive conditions, assuming you have good portability.

I wouldn't give too much weight to the tax effect, since it doesn't make much difference anyway at the current low interest rates you could deduct. However, you should be aware that if you amortize the mortgage in full, it would probably be difficult to take out a new mortgage at a later date. So you need to consider whether you still have enough financial reserves on the side for unexpected and unbudgeted costs for yourself or in case of a necessary renovation or for other major purchases or for traveling, even after a possible amortization.

If you do not have very high liquid assets, I would keep the mortgage in the current amount or only make a partial amortization, so that you have sufficient financial flexibility beyond the actual pension at any time in old age. Partial amortization can be a trade-off.

If you are sure that you do not want to sell your house in any case, but keep it for the long term, I would tie the extremely low interest rates for the long term. You can currently take out a ten-year fixed-rate mortgage at very favorable conditions.

In this period, however, amortization is then not possible. In exchange, you have financial security and can reliably budget for foreseeable home costs for the next ten years beyond, which is especially important as you age.

Importance of scoring

Schufa: Basic score versus industry scoring

What data flows in?

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