Credit Score

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Related Topics:
  1. Payment plan
  2. B2C
  3. B2B
  4. Base interest rate
  5. Credit Score
  6. Liquidity
  7. Affidavit
  8. Credit insurance
  9. Factoring
  10. Objection
  11. Foreclosure
  12. Default of payment
  13. SCHUFA
  14. Enforcement Officer
  15. Opposition
  16. Dunning notice
  17. Statute of limitations
  18. Receivable
  19. Enforceable title
  20. Debtor
  21. Creditor
Table of contents:
  1. How is credit score assessed?
  2. How is the credit score calculated?
  3. What data is used for credit assessment?
  4. When is credit score checked?
  5. Where does credit data come from?
  6. What role does credit score play in the debt collection process?
  7. What credit data is used in a collection process and by whom?

How is credit score assessed?

Credit score means: How well can someone pay their bills? It shows how financially reliable and capable a person or a business is.

A credit assessment gives companies an initial idea of whether there might be problems with future payments. This is usually based on what’s called a credit score – a number that indicates the risk of non-payment.

The better the credit score, the lower the risk. The worse the credit score, the more likely it is that payments will be missed. The score is therefore an important tool for making decisions – such as when entering into contracts, issuing loans, or initiating collection cases.

How is the credit score calculated?

The credit score is calculated using a specific mathematical process known as a scoring model. Each credit agency uses its own system, and the exact formula is usually not publicly disclosed.

To determine the score, various data points are analyzed and compared. These might include:

  • Previous judicial dunning processes, collection cases, or insolvencies

  • Whether payments have been made on time in the past

  • The number of ongoing contracts

  • How often a credit check has been conducted recently

The data is compared with information from many other individuals or businesses. This results in an average, and the personal score then shows whether someone is above or below that average.

The score itself is a statistical estimate. It doesn’t predict with certainty whether someone will pay, but rather indicates how likely it is that a payment might be missed.

What data is used for credit assessment?

Various pieces of information are collected about a person or company for a credit assessment. These are referred to as credit data. They help estimate payment behavior.

This includes:

  • Personal information such as name, date of birth, and address

  • Details about existing contracts, such as loans or mobile phone plans

  • Information about missed payments, such as dunning notices or collection cases

  • Court records, for example from debtor registers

  • For businesses: figures from annual financial statements, revenue, number of employees

This data is analyzed and weighted. The result is an overall picture – and ultimately, a credit score. Not all data points carry the same weight. Some pieces of information influence the score more than others.

When is credit score checked?

A credit check is conducted when entering into contracts that involve money. Companies want to know: Is this person or business likely to pay on time?

Typical situations include:

  • Purchasing online with payment by invoice

  • Signing a rental agreement

  • Applying for a loan at a bank

  • Signing a mobile phone contract

  • Starting a collection process

Credit score may also be checked during an ongoing business relationship – for example, if payments stop coming in or a large order is placed. This allows the company to recognize potential risks early.

Where does credit data come from?

Credit data comes from various sources. The most important are:

Credit agencies such as SCHUFA, CRIF or Creditsafe. These companies collect large amounts of data about payment behavior, outstanding debts, contracts, and court records. They store this data centrally and provide it to companies for a fee.

Public registers such as the insolvency register or debtor registers maintained by local courts. These contain information about ongoing insolvency proceedings or sworn affidavits.

Creditors’ own experience. If a customer failed to pay in the past, the provider may remember this. That experience can also influence the credit assessment.

Credit checks are usually performed by credit agencies – some modern debt collection providers, such as Debtist, also offer them directly, for example to quickly assess outstanding claims or before initiating a collection process.

All data sources must be reliable. In addition, strict rules apply to which data may be used – for example, under data protection laws.

What role does credit score play in the debt collection process?

In the collection process, credit score is an important indicator for determining the next steps. It shows how likely it is that someone is able – or willing – to pay.

If a person or business has good credit, collection agencies often assume that payment is possible. The bill may simply have been forgotten or there was a misunderstanding. In such cases, the first step is usually to try resolving the claim out of court.

If credit score is poor, the person may be over-indebted or involved in an insolvency proceeding. In these cases, the collection agency assesses whether further action is worthwhile – such as initiating a judicial dunning process or offering a payment plan.

Credit score does not replace legal evaluation, but it is a useful tool to help structure the collection process.

What credit data is used in a collection process and by whom?

In the collection process, credit data is primarily used by collection agencies. It helps them assess the risk and choose appropriate measures. The original creditor may also have obtained a credit report beforehand.

Typical credit data used in debt collection includes:

  • The current credit score, e.g., from SCHUFA

  • Negative entries such as open dunning notices, enforcement proceedings, or enforceable titles

  • Indications of an ongoing insolvency proceeding

  • Entries in debtor registers

This data may only be requested if there is a legitimate interest—for example, because an unpaid invoice exists. Strict data protection laws apply. No one may perform a credit check without proper legal grounds. The use of the data must always be lawful and traceable.