Credit standing explained in simple terms
A person’s credit standing is assessed using a combination of their credit capacity as defined by the Consumer Credit Act (KKG) and their creditworthiness.
What does credit capacity mean?
Credit capacity is checked to prevent the borrower from falling into excessive debt. The law states that a borrower must be of age and able to pay off the loan including interest within 36 months using their disposable (attachable/seizable) income. The actual loan term selected is not taken into consideration here. All lenders are obliged to calculate this.
The credit capacity check is required by law for loans that are subject to the Consumer Credit Act (link not available in English). The attachable or seizable part of the income is calculated by deducting the subsistence minimum (according to the guidelines of the canton of residence) from the borrower’s net income. The old age and survivors’ pension (AHV), invalidity insurance (IV) benefits and similar benefits are not attachable. This is why pensioners, for example, are not usually approved for loans.
The lender must take account of at least the following outgoings when determining the budget:
Rent/housing costs
Tax
Obligations that have been reported to the Information Centre for Consumer Credit [IKO] (existing loans, leases)
Further data is taken into account as part of a full credit check .
What does creditworthiness mean?
Lenders check creditworthiness to assess the risk of the borrower defaulting on their loan. They also usually use this information to determine what interest rate to offer. To make the assessment, lenders use sources such as credit databases, debt collection offices, the ZEK, the IKO and documentation provided by the borrowers themselves. They also draw on their own customer data and general statistical information in their risk assessment.
Each bank evaluates this data on an individual basis. As the borrower, you cannot usually predict with any certainty your chances of having a loan application approved. Approximately half of all loan applications are rejected. Each rejection is stored with the ZEK and can have a negative effect on the success of subsequent loan applications.
Intermediaries such as Credaris place your enquiry with a bank that matches your profile, thus reducing the risk of rejection. Find out which credit providers Credaris works with.
