Credit checks for loans

Purpose of the credit check

Whenever a loan is approved, you undergo a credit check, conducted before finalising contracts for credit cards, leases, or loans. This check serves two purposes: assessing your financial ability to repay (credit capacity) and your likelihood of doing so (creditworthiness).

The outcome determines whether you secure a loan – and, for some lenders, the interest rate offered – as higher rates help mitigate default risks.

What does a credit check cover

Your creditworthiness indicates how likely you are to meet financial obligations, based on your economic situation and perceived willingness to pay. Lenders, including banks, assess this for all customers. For consumer loans, this evaluation is legally mandated and must adhere to specific regulations.

Credit capacity: Can you repay?

Credit capacity evaluates your financial ability to repay a loan, based on your income and expenses.

For consumer loans, this check ensures you can fully repay within 36 months, calculated using your «freely disposable income» – the monthly loan payment must not exceed this.

This calculation adheres to the Federal Act on Debt Enforcement and Bankruptcy (DEBA, Bundesgesetz über Schuldbetreibung und Konkurs) and cantonal guidelines.

Lenders are legally required to perform and document this budget assessment in the loan agreement.

For loans under the Federal Law on Consumer Credit (FLCC), lenders must consult the IKO (Consumer Credit Information Office), which tracks current obligations from loans, leases, and credit cards to prevent over-indebtedness.

Lenders report to the IKO:

• Your surname, first name, address, and date of birth
• Loan type
• Contract start and end dates
• Number of payments
• Gross loan amount (including APR and additional costs)
• Monthly payment amount
• Payment arrears exceeding 10% of the net loan amount

Creditworthiness: Will you repay?

The creditworthiness assessment gauges your likelihood of repaying a loan on time. Unlike credit capacity, which is a financial metric, creditworthiness relies on past data and interpretation.

It considers:

• Negative events like payment reminders, debt enforcement, or collection actions
• Your recorded payment history
• Factors such as residence, moves, or job changes
• Socio-demographic details

Key sources include credit bureaus and the ZEK. Beyond current obligations, the ZEK holds payment histories for loans, leases, and credit cards – both positive and negative – plus data on loans outside the Consumer Credit Act.

Data from residents’ registration or debt enforcement offices may also be reviewed.

Related topics:

Impact of the credit check

For consumer loans, assessing credit capacity is legally required to ensure you can repay within 36 months, while lenders also verify your budget to protect their own interests. The credit check evaluates both your financial ability (capacity) and likelihood of repayment (creditworthiness), shaping loan outcomes. Lenders then apply their own risk criteria, deciding approval and interest rates based on this combined assessment.

What this means for you:

• No private loan in Switzerland bypasses a credit check.
• You must be able to repay any loan within 36 months using your «freely disposable income», even with a longer agreed term.
• Lenders interpret credit bureau data variably.
• Risk criteria are partly confidential to prevent fraud, complex, lender-specific, and evolve over time.
• Predicting whether and from which provider you will receive a loan is hardly possible.
• The offered interest rate is related to the credit check: In general, the valuation of the default risk is reflected in the amount of the interest rate. The first question must therefore be whether you will receive a loan, the second whether the desired amount is possible and third, on what terms (interest and term).
• Rejection reasons are typically undisclosed.
• AA rejection is logged with the ZEK for two years, visible to ZEK members (lenders, lessors, card issuers), potentially affecting future applications based on cause and frequency.

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