How to improve your credit score and get financing

With the purchase of a property you enter into many obligations.

As a rule, you are making the biggest investment of your life.

Therefore, this step should always be well considered. With a good credit rating you get a low-interest real estate financing.

But which factors are included in the credit rating and how can it be improved?? Finally, many consumers still believe that only a bad payment history would negatively affect the credit rating.

In the following, I will explain which additional factors play a role and how you can improve your credit rating. In addition, I explain what you need to consider when buying a house and what points should already be determined in advance.

Check your own financial situation


Check your financial situation

The purchase of a property is always worthwhile if you are looking for a stable investment that can later be passed on to your children.

But a property of one's own is also ideally suited as a retirement provision – but only if it is paid off by the time one reaches retirement age and then only the operating costs are incurred.

For the purchase, an equity share of at least 20 percent of the purchase price should be available. The current low interest rates also make the purchase of real estate very attractive.

First and foremost, it is important to prepare a budget statement with all monthly income and expenses. On the other hand, not only the installments must be able to be paid, but there should also be a financial buffer for emergencies.

In general, the more equity you have, the lower the interest rate.

Borrowers should always go into the credit interview well prepared. Unlike prepaid credit cards, where credit score is not a factor, your credit score is extremely important for real estate financing.

It is best to first obtain several financing offers from different credit institutions. To ensure that the inquiry does not fall through because of a poor credit score, consumers should make use of their annual right to a free self-disclosure and check the information recorded there for accuracy.

Improve credit score – this is how it works

credit score

If you want to improve your credit rating in the short term before taking out real estate financing, you should first obtain a self-disclosure.

The examination of the own credit-worthiness gives it for example here free of charge. Check the accuracy of the data contained. Because errors can always occur during the storage, which then worsen your credit rating. All data stored at the credit agencies are the basis for the assessment of creditworthiness.

No bank in Germany grants real estate financing without first checking the creditworthiness of the borrower – this is done by making an inquiry with an appropriate credit agency.

Not only the decision to approve or reject the real estate financing depends on the credit score, but also the interest rate.

1. Correct the stored data

Errors can always happen, and even credit agencies do not work completely error-free.

It is possible that the credit report has stored inaccurate or outdated data and, for example, a loan that has long since been repaid has not yet been deleted.

A reminder against which you have appealed and which is unjustified can still be included and significantly worsen the credit rating.

In such cases, ask the credit agency to delete the incorrect data.

2. Make the right credit inquiry

If you obtain before taking up the real estate financing comparison offers at different banks, you must absolutely pay attention to the fact that the credit institute places the credit inquiry as "inquiry credit conditions".

Because lenders and banks report all credit inquiries to the credit bureaus – even if they are made without obligation.

Therefore, you should point out to the bank that you are only interested in the credit conditions.

3. Think of all incomes

Applying for a loan is another good way for you to improve your credit rating.

Because banks do not only judge on the basis of the credit report, but also have their own criteria. This includes, but is not limited to, existing income and assets, as well as payment obligations.

So when declaring your income, think about all income, such as interest earned on investments, income tax refunds or any care allowance you may have received. Adding a second borrower with their own income also significantly improves credit scores.

4. Long-term measures to improve creditworthiness

Very many quality criteria cannot be influenced in the short term before taking out a real estate loan.

It is therefore advisable to improve one's credit rating in the long term.

Deterioration occurs due to many small loans, multiple checking accounts and credit cards, and of course unpaid bills. On the other hand, a long-term employment relationship has a positive effect.

Avoid payment arrears and pay your bills on time. Since your bank knows all your account transactions, it can better assess your overall payment history than an outside provider.

Therefore, the likelihood is quite high that a foreign credit institution despite the same credit report your credit rating higher.

Buying real estate – this is important!

Once the loan has been approved, you can proceed with the purchase without any worries. There are a few things to keep in mind here as well:

Determine region

Which region should it be? Is there a possible change of location in your job?

Then a property can be a hindrance and you may have to sell it – if you have to do it quickly – at a great loss of value!

The location of the property is unchangeable, but the environment can change. Therefore, a visit to the building authority is in order to get an insight into the building plans of the neighborhood.

The house search

There are some Internet portals for real estate, which offer a wide range of offers.

You should also inform your acquaintances that you are planning to buy a property. Maybe one or the other of your friends has a tip or knows someone who happens to sell a suitable property.

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