Credit rating in Germany
The SCHUFA in Germany works a bit different from the FICO score in the US. My background: I am a German currently living in the US. The information others want to see from the SCHUFA are a bit different. If you want to example rent a house or an apartment, the landlord often wants to see a SCHUFA statement which only shows that there are no negative entries. This statement you can get easily from online and they don't mention your credit score there. If you apply for a real credit or want to lease a car, they want to look deeper in your SCHUFA profile. However, very important is: They need signed permission to do this. Every participating company can submit entries to your profile where the score is calculated from. For example mobile phone plans, leasing a car, applying for a loan. Some lenders decide on the score itself, some on the overall profile and some also take your income into account. Since there is no hire & fire in Germany you are often asked to show your last 3 paychecks. This, in combination with your SCHUFA score is used for determination if you are eligible for a loan or not. However, they check through every entry which is made there and as long as it is reasonable and fits to your income (car for 800 EUR/month with a 1000 EUR salary does not!) you should not have a problem establishing a good score. The, in my eyes, unfair part about Schufa is that they take your zip code and your neighborhood into account when calculating their score. Also moving often affects the score negatively. To finally answer your question: Credit history is also built by mobile phone plans etc. in Germany. As long as you pay everything on time you should be fine. A bad score can definitely hurt you, but it is not as important to have a score as it is in the US because the banks also determine your creditworthiness based on your monthly income and your spending behavior. The SCHUFA explicitly says on their website that their scoring system is a secret. However, if your goal is to be credit-worthy for example to get financing for a house or a car or whatever, just pay any loans and your credit card back on time and you'll be fine. There is no need to build a credit history. I just got a mortgage on a new house without any real credit history. I have one credit card which I only use on vacations because some countries don't take my debit card, and I always put money on it before I use it, so I've technically never borrowed money from a bank at all. My banker looked at my SCHUFA with me and we saw that there was nothing in there except for the credit card, which has a 500€ limit and if I maxed it out, the monthly interest would be 6,80€ so he added that 6,80€ to my expenses calculation and that was it. If you're having trouble getting a loan and you don't know why, you can ask the SCHUFA for the data they have on you and you can correct any mistakes they might have made. Sometimes, especially when you have the same full name and birth date as somebody else, the SCHUFA does get things mixed up and you have to sort it out.
If you are interested in this stuff, S&amp;P produce a sovereign rating methodolgy, in which they will tell you exactly what factors they look at.  Once you read this, you can obtain their latest rating report on India and Spain to understand how they applied said methodology in each case. (Not sure if this is free) For instance and to give a comparison to the US - in Austria, almost everybody gets a credit card (without a credit history (e.g. a young person) / with a bad credit history & with a good credit history).  The credit history is in the USA much more important than in Austria. In future, the way to assess a credit history will change due to analysis of social networks for instance. This can be considered in addition to traditional scoring procedures. Is your credit history/score like a criminal record? Nope. I mean is it always with you?  Not really cause a criminal record will be retained on a central storage (to state it abstract) and a credit history can be calculated by private companies. Also, are there other ways to get credit cards besides with a bank? That depends on the country. In Austria, yes. In six months, there is little you can do that will significantly affect your future credit rating other than trying to avoid paying for something by leaving the country. As we keep telling people, the best things you can do for your credit rating are to have a good income and Don't Be Stupid about misusing credit. Surely there's more to the picture than this.  Breaking the borrowing limit by going to 3.5% multiple times is surely no where near as bad as going to 18% once.  On top of this there was a fundamental difference in the use of capital.  Borrowing to invest (as Germany did) has been ridiculously beneficial for them. You borrow on  the international makets.  [Moody's predicts Scotland would get an 'A' credit rating](http://www.bbc.co.uk/news/uk-scotland-scotland-politics-27247870)  [Standard &amp; Poors - Independent Scotland could be AAA rated](http://www.businessforscotland.co.uk/independent-scotland-could-be-aaa-rated-standard-poors)  [Credit Suisse report independent Scotland would be ranked four places higher than the rUK.](http://www.newsnetscotland.com/index.php/scottish-news/9637-scotland-ahead-of-ruk-even-without-oil-says-credit-suisse-report)  [An independent Scotland would be a wealthy and financially viable country like New Zealand, but could suffer initial growing pains, according to credit ratings agency Standard &amp; Poor's.](http://www.theguardian.com/politics/2014/feb/27/independent-scottish-economy-viable-slow-first-standard-poors) "Frequently selling and buying properties is generally not advisable in Germany due to the high cost for property purchase tax (""Grunderwerbssteuer"") and land registration fees (""Grundbucheintrag""). You can generally assume that ever time you trade homes, you pay about 10% extra. So it is likely a good idea to keep your property and rent it out while you don't need it so you can use the rent to pay for your new room. That's especially true if you expect the property to increase in value. Also, due to the low interest rate right now, real estate is practically the only good capital investment. A 85k asset which makes you 4.8k each year is a return of investment of 5.6%*. Any financial asset promising you that kind of dividend at the moment is likely equivalent to gambling. * yes, I ignored maintenance costs, but it's still a really good deal. If you want to rent out your flat as stress-free as possible, give it to a property management company (""Hausverwalter""). In exchange for a percentage of the monthly rent they will take care of all the small stuff (like hiring handymen to fix broken toilets). You might still have to pay for really expensive investments, though (like replacing a leaking roof). But when something like that happens, you should have no issue to finance it with a loan because you have a real estate as a security.  However, keep in mind that the German tenancy law might make it difficult (but not impossible) to get rid of the tenant in case you want to move back into the apartment. Google ""Mietrecht Eigenbedarf"" for more details. Should you decide after your study that you don't want to move back, you can always sell the flat with the tenant. But rented properties usually get far lower prices on the real estate market than empty ones. Regarding covering your cost of living besides rent during your studies: If you are eligible for BAföG (state-sponsored student loan), you should take it, because it's an offer simply too good to refuse. It's literally free money. But unfortunately you are not, because you own too much real estate wealth you are not living in. But you should ask your bank for a loan backed by said property. That way you will likely pay far less interest than with a regular private student loan which isn't backed by anything except the hope for a relevant degree." You really can't. Credit rating is determined by financial history, and until your kids are old enough to legally sign a contract they have essentially no financial history. Interesting out-of-the-box thought, but not workable. There are some out there making the argument that negative yields on the German Schatz (2-year note) are the result of speculators betting on a break-up of the euro area and its common currency. Specifically that assets held in euros, i.e. German bonds, would be re-denominated into a new Deutschmark that would appreciate in value against other European currencies. In Germany you can register a Einzelunternehmen and receive payments into your personal bank account with a German bank. Apple will certainly be able to transfer to accounts in Germany as payments go via the European SEPA standard. Tax wise if you are living in Germany you will need to pay tax in Germany, so this is really the easiest way of doing it. Credit agency sovereign ratings take into account the amount of external support the government is likely to get during a time of stress.  The whole EU just came to Spain's rescue, but who would come to India's rescue so as to be sufficient to prevent default?  See, the fact that Spain was able to get a bailout is most of the reason Spain's credit rating is higher than India's. "That's definitely a good point; thanks for noting that. Leverage was definitely an issue.  Re: the ratings agencies, I just wanted to clarify that I was talking about something a bit different than the problem of ""ratings shopping"" (I assume this is what you meant what you mentioned the ratings agencies ""capitulating"").   ""Ratings shopping"" is essentially the tendency for a ""race to the bottom"" in ratings when banks pay for ratings. That has always been an issue for the ratings agencies since the 1970s (I think?) when they started having the rated entities pay for their ratings.   What I was talking about is more unique to the structured products industry in the mid-2000s -- i.e. how the ratings agencies gave banks an opportunity for essentially risk-less profit by merely repackaging MBSs into CDOs. So banks would buy up MBSs, repackage them into CDOs, sell shares of the CDOs to investors, and then hedge all of the residual risk away by writing a CDS contract with a monoline insurer like AIG. This has more to do with the relationship *between* ratings for different products, and not the absolute ""level"" of the ratings for any given product.  Sorry if that sounds nit-picky, but I think it's an extremely important detail that is generally lost upon -- as you pointed out -- economists who are pushing the ""ratings shopping"" theory. I would guess this is because moral hazard is a story they are already familiar with." Say there are 5 people took loan of $100000 each. Those 5 people work in different jobs and have different capacity to payoff loan. Someone earning $40000 a year has higher risk to default on their payment then someone making $250000 a year.   As Bank wants to sell this CDO to investor but how would investor know what the risk factor for this CDO is. This is where rating agency comes in picture. They apparently look at the underlying asset and assign rating to this CDO say AAA, B, AA etc which give investor idea of underlying risk.   Problem here is rating agency gets paid by Bank to rate their CDO. So if a rating agency starts rating their CDO to higher risk Bank will go to next agency round the corner to get better rating and agency will lose commission. You can see the problem here.   Now if people start struggling to pay loan, bank will not get money and it cannot pay CDO holders. If house that was worth $100000 when CDO was created is devalued to say $50000 today the underlying asset is not worth as much when CDO was sold. That is what happened when market crashed in 2008 and GFC hit. "Credit Scores / Rates are based on sometimes simple and sometimes quite complex Statistical Models (Generalised Linear Models, Neural Networks, Regression and Classification Trees, Mixture Models, etc).This depends on whether it is something more general like FICO or what large banks develop in-house. In any case, there are many legislation-dependent factors (Qualitative such as education, occupation security, sex, etc, payment history; or Quantitative such as age, liquidity and leverage ratios, etc).  Now, most model that are used today are propriety and closely held trade secrets. The most important reason for this is actually because of the databases that feed the models. More better quality data is what makes the real difference ... although at the cutting-edge, the mathematicians/statisticians/computer scientists that design the algorithms will make a huge difference.  Now, back to the main thing: The Credit Score/Rate is meant to be used only as an indicator for representing the Probability of Default (""How likely you are to default on your obligation towards me?"" is what it means and that is largely based upon ""Has company/he/she honoured his financial obligations?"") of a certain consumer. In more sophisticated models, they may also use your industry sector or occupational and financial security to predict the future behaviour. However, this ""Credit Score"" has meaning only in relation to a ""Credit Limit"" (""Can you pay back my $X?""). The credit limit on the other hand is defined by your income level, debt/asset, etc).   As a credit risk analyst, whether we are dealing with large corporate loans, mortgages, personal loans, etc), the principles are the same: One thing to consider is that factors considered in determining a credit score usually do not have a simple linear relationship.  Consumer Profile types such as utilisation rate are a lot more about EFFECT than CAUSE:   The most important thing is to honour your obligations, whether you pay before or after you spend makes little difference, so long as you pay in full and prior to maturity, your rate/score will improve with time. Financial Institutions have many ways to make money of everyone. Some, such as interest rates and fees are directly charged to you and some are charged to your goods-and-services providers. That has no bearing on your score. Sometimes it even makes sense to take on customers with rock-bottom ratings, lend them lots of money, and charge them to dirt. As you may well know, the recent financial crisis - with ongoing after-shocks and tremors - was the result of such practices." Gundlach shared a chart that showed how investors in European “junk” bonds are willing to accept the same no-default return as they are for U.S. Treasury bonds. In other words, the yield on European “junk” bonds is about the same—between 2 percent and 3 percent—as the yield on U.S. Treasuries, even though the risk profile of the two could not be more different.  Sounds like a strong indicator to me. How might this play out in the US? I don't know of any books, but there are a lot of good white papers on the subject if you take the time to look for them. For example, Moody's has a white paper on their LGD model (LossCalc) that explains their calibration methodology.   Searching for academic papers on the subject is really the only way to go, because credit risk is a field that really is just being explored. Really only since 2006 have banks started to actively try to use a risk rating model that incorporates PD and LGD. This is because of data insufficiency - banks just didn't keep active and centralized loan level data that is required to calibrate the models.  tl;dr: Use the internet - it is your friend.