There are not many service providers who prefer to downplay their own importance. The credit agency Schufa is one of them, even if its credit score is quite significant: for 60 million people in Germany, data collection is an important measure of whether someone is creditworthy or not. Only recently did Schufa confirm with its customers that their score is not as important as everyone always thinks. This is an important question because the European Court of Justice (ECJ) is deciding this week whether the use of the Schufa score and comparable credit ratings must be restricted.
However, research by NDR and SZ shows that numerous large companies in various industries still use Schufa’s credit rating to decide whether they should enter into a contractual relationship with potential customers – for example for cell phones, job tickets, energy supplies – and under what conditions. NDR and SZ asked almost a hundred large companies in Germany whether such assessments were decisive for them when making contract decisions.
Several large energy suppliers confirmed that they use the score to assess new customers. Anyone who is certified by Schufa as having good solvency will receive a special contract with favorable conditions from the energy supplier. Anyone who is judged less well has to go to more expensive basic care. The score is also crucial for larger transport companies when it comes to whether subscriptions are taken out, as well as for mail order companies, especially in order to assess the creditworthiness of new customers. Two major payment service providers also said the score was important to them.
Most companies did not want to be named. Some companies did not answer the question about the importance of the Schufa score for their contract decisions – citing confidentiality. Banks and savings banks suggested that the Schufa score alone is often not decisive for them and that further information would be taken into account when making a credit decision.
The ECJ is now addressing the question of whether scoring is compatible with the General Data Protection Regulation, which has been in force since 2018. It says that decisions that have a legal effect on people must not be made purely automatically. In his closing argument in March 2023, the Advocate General at the ECJ stated that the Schufa score should not be decisive when companies decide on contractual relationships. The score is a probability value that is calculated from customer data using mathematical and statistical methods and is intended to predict whether someone can pay bills. In its judgments, the ECJ usually follows the closing arguments of the advocates general.
The scoring characteristics? Sometimes “hardly communicable”
In any case, Schufa seems nervous: in the fall it even tried to get contractors to provide a written statement. You should confirm that the Schufa score is not a knock-out criterion for contract decisions. The customers have confirmed “in the vast majority” that the score is “important, but not decisive,” said Schufa boss Tanja Birkholz last week dem Daily Mirror. Nevertheless, the credit reporting agency is now preparing for scoring to be restricted by the ECJ ruling. In this case, Schufa is working towards a change to the Federal Data Protection Act, which should enable the use of Schufa scores as before. Until then, the aim is to ask consumers to agree if a decision is to be made based on a score.
Meanwhile, research by NDR and SZ suggests that Schufa’s score, often referred to as the “Coca-Cola formula”, was apparently seen internally more as a communication problem than as a business secret. In a confidential Schufa list, the 70 score characteristics were marked with five colors: dark green (“good for consumer communication”), light green (“may be suitable”), yellow (“difficult to communicate”), orange (“hardly communicable”) ) and red (“not suitable for communication”). Of the 70 features in the list, only 17 were rated as unreservedly “good for consumer communication”.
However, in most cases it is unclear why Schufa did not consider the characteristics to be communicable. There are only indications for the characteristics “age” (“possibly problematic due to anti-discrimination”) and “postal code of the person’s current address” (“regional debate”). Several characteristics were apparently only considered “communicable” if they had a positive effect on the Schufa calculations, such as the “existence of a checking account”. A Schufa spokeswoman explained that it was not possible to understand which document it was and therefore neither checked nor commented on the information.
In any case, Schufa is of the opinion that its scoring actually makes it easier for people to participate in economic life. “The more you know about a person’s financial conditions, the easier it is to find the dividing line as to whether someone should still get one or the other contract or not,” says Schufa boss Birkholz, who took office four years ago, the credit agency is more transparent make. Experts, however, demand that Schufa should disclose the score. “The deeper problem is that Schufa keeps these characteristics and their weighting secret from experts who could certainly evaluate whether Schufa is doing a good job,” says scoring expert Matthias Spielkamp, co-founder of the non-governmental organization Algorithm-Watch . How fair is it if the poorest people in particular have a disadvantage, for example when it comes to basic things like energy supply?