The credit check is a necessary assessment for credit applications, inspecting solvency and willingness to pay. The credit check is a fundamental component of a loan agreement and is required by the Swiss Consumer Credit Act (FLCC).

Credit standing is determined based on ability to repay and creditworthiness, whereby available income and financial trustworthiness are examined.

Credit rating databases such as the Central Office for Credit Information (ZEK) provide information for the assessment. Important aspects are income, existing debts, payment history, rejected credit applications, and debt collection.

A positive credit rating leads to better credit conditions, while a negative rating makes it more difficult to obtain a loan. Several measures improve creditworthiness: Waiting for the statute of limitations on ZEK entries, correcting incorrect entries, and selecting suitable lenders via specialized providers.

When does a credit check take place?

A credit check is always carried out when companies advance money, goods, or services and are unsure whether customers can pay their bills. A credit check is widespread for the following contracts.

Lending: Credit institutions and banks conduct credit checks to assess the risk of loan default. Personal loans and corporate financing are included here.
Leasing contracts: Credit checks are also carried out when leasing vehicles and real estate to assess the lessee’s ability and willingness to pay.
Credit cards: Credit card companies check creditworthiness to determine the credit limit and decide whether to issue a credit card to the applicant.
Online purchases on account: Before allowing customers to make purchases on account, online retailers and service providers can also check their customers’ creditworthiness. Of course, the check is not equally comprehensive here.
Renting accommodation: Landlords carry out credit checks to ensure that potential tenants can pay the rent.
Mobile phone contracts: Mobile phone providers also conduct credit checks, especially if the contract includes a subsidized cell phone or other hardware.
Insurance policies: Insurance companies conduct credit checks to determine risk and premium amounts, especially for life insurance policies.

Is a credit check mandatory?

Credit checks are mandatory if the contract falls under the Swiss Consumer Credit Act (FLCC). To ensure protection against over-indebtedness in the case of loans, a credit check is essential following the legal basis for loans. A credit check is also a requirement for leasing contracts, the opening of credit card accounts, and the conclusion of mortgage loans.

The law provides for specific exceptions where a credit check is not mandatory. The legal obligation to carry out a credit check does not apply to credit agreements less than CHF 500 or more than CHF 80,000. Also exempt are loans covered by houses or other customary bank collateral, interest-free and fee-free loans, and short-term loans that must be repaid within three months.

What is the procedure for a credit check?

The credit check process can be divided into two areas: The check for the ability to repay and the check for the willingness to repay. Creditworthiness and solvency together reflect the credit standing.

How is solvency assessed?

Solvency is assessed based on statutory regulations. Borrowers must be of legal age and able to repay the loan plus interest within a period of 36 months. The maximum credit limit is determined according to this criterion. The decisive factor for the assessment is disposable income, which corresponds to the part of the income that cannot be seized per the Debt Enforcement and Bankruptcy Act and the cantonal provisions. Put simply, the maximum monthly loan repayment amount, including interest, may not exceed the freely disposable income.

The disposable income is calculated from the net salary minus the legally defined minimum subsistence level (approx. CHF 1,200 per month for a person living alone, depending on the canton).

How is creditworthiness assessed?

Creditworthiness is assessed based on financial trustworthiness and indicates the probability that people will not pay their bills. The assessment examines previous payment behavior, outstanding debts, and negative or positive financial events. Financially relevant factors such as age, place of residence, and nationality also play a role.

Credit rating databases such as the Central Office for Credit Information (ZEK) and other credit agencies provide information that influences creditworthiness. In Switzerland, there are four credit agencies besides the ZEK: Dun & Bradstreet, Creditreform, CRIF, and Intrum. Current loans, past debt collection, open credit applications, and much more is stored here. The data included varies depending on the lender. The data from credit agencies is also used outside of lending, for example, for online purchases or rental agreements. Credit agencies must comply with the Data Protection Act, which means that only people who can prove a legitimate interest may have access to the data.

What is taken into account in a credit check?

A credit check takes into account all factors that are financially relevant from a statistical point of view. The 5 most important factors are as follows.

Income
Existing debts
Payment history
Rejected credit applications
Debt collection

1. Income

Income is a decisive factor in the credit check. Not only is the amount of income taken into account, but so is its regularity and source. For example, self-employed people are less creditworthy than employees in the same income bracket because the risk of default is higher.

2. Existing debts

Existing debts are incorporated in the check, including loans, leasing contracts, credit card liabilities, and other financial obligations. It is worth reducing existing credit debts before a credit check. A high level of debt harms creditworthiness as it restricts the financial resources available for paying off new debts.

3. Payment behavior

Previous payment behavior is analyzed via the payment history. Regular and punctual payments in the past strengthen creditworthiness, while late payments and reminders are seen as negative signals.

4. Rejected credit applications

All rejected or granted credit applications are noted in the credit agencies and influence the credit rating. Several rejected applications in a short period indicate financial difficulties, reducing the chances of obtaining a new loan.

5. Debt collection

Debt collection is a serious negative factor in credit rating and significantly damages creditworthiness. Special attention is paid to the debt collection register when checking creditworthiness. It is very difficult to obtain a loan despite debt collection, as this indicates severe problems in meeting financial obligations.

What effect does a credit check have?

The credit standing has far-reaching effects, as it plays a fundamental role in the decision to grant loans, lease contracts, and other financial services.

A positive rating paves the way to more favorable conditions, higher credit limits, and, typically, the approval of financing applications.

A negative rating makes it more difficult to obtain credit. The consequences are higher interest rates, lower credit limits, or the need for additional collateral. In profound cases, a poor credit rating can lead to loan applications being rejected altogether.

How can you improve your credit rating?

There are many ways to improve your credit rating. Long-term options include increasing your income, reducing monthly expenses, saving up equity, and avoiding unnecessary debt.

However, improving your credit rating in the short to medium term is also possible with the following measures.

Wait for the ZEK entries to expire
Have ZEK entries corrected
Make an application via Kredite Schweiz
Use credit cards

1. Wait for the ZEK entries to expire

After a certain waiting period, ZEK entries become less critical, and creditworthiness improves again. For example, if you have been refused 3 loans, you must wait at least 3 months without inquiring so that the previous ZEK entries are ignored. Debt collection measures and/or debt enforcement remain noted in the ZEK for 5 years.

2. Having ZEK entries corrected

Cleaning up ZEK entries is possible to a limited extent, but it can be very helpful in certain circumstances. If the ZEK has registered incorrect or unauthorized entries, you can have them corrected. In principle, only the institutions that initiated the entry may delete the entry prematurely. However, there are providers such as “Credxperts” that offer services to get rid of as much harmful data as possible.

3. Make an application via KrediteSchweiz.ch

Choosing the right provider will increase your chances of getting a loan if your credit rating is not too good. Choosing a lender is a major challenge for non-experts, which is why you can apply for a loan via KrediteSchweiz.ch and get the best chance of success.

4. Using credit cards

Using credit cards is a good way to improve your credit rating. The payment history is listed with credit agencies, as credit cards in Switzerland are considered as loans. Responsible use and regular, punctual payment of bills can, therefore, improve your credit rating. According to an article by NerdWallet called “Real Ways to Improve Your Credit Fast”, it is one of the most efficient methods. In Switzerland, credit card use has less impact but still sends good signals.

How does a credit check work in Switzerland?

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