Before beginning your hunt for an apartment or housing unit in the UAE, there’s an important thing that you need to consider – your credit score. It’s certainly isn’t a secret that property rates in Dubai are higher. Therefore, one needs to make arrangements for funds prior to searching for the property, be it an apartment, villa, townhouse or penthouse in the emirate. The most common route people follow here is to apply for a loan.
Of course, there’s also cash vs mortgage debate. But the long and short of it is that not everyone has the privilege of arranging enough cash to make a complete upfront payment to buy a property in Dubai. Therefore, the ultimate resort for many is to get a home mortgage.
Note that credit scoring is calculated differently in each country. So, if you’re new in the UAE and wondering how to calculate your credit score, we have got you covered. But before that, let’s take a look at what exactly is this score and what it can be used for.
To better understand the meaning of credit score, you would need to know about the credit report. A credit report, in simple words, is a detailed statement showing an individual’s creditworthiness. Basically, it contains their repayment of debts. In the UAE, the Al Etihad Credit Bureau (AECB) is responsible for preparing an individual’s credit report. It is a government organization that was launched by the federal government in 2010. It takes into account a person’s credit relevant data that is gathered from different sources such as lenders, banks and credit card companies etc.
Coming to the credit scoring, it is an advanced form of the credit report. It was introduced in 2018 by AECB, the organization responsible for preparing credit reports. A credit score is a three-digit statistical number showing if a person is worthy of repaying the amount lent or not. Simply put, it shows how the applicant will pay a loan and credit card repayments. The minimum and maximum score are 300 and 900, respectively. A higher score shows high creditworthiness and vice versa.
A credit score is used to determine an individual’s ability to repay a loan. This is why financial institutes such as banks and private lenders check this score before approving an individual’s loan application. It helps them to know if the person in question would be able to pay back the lent amount or not.
For lenders, it is a facility that allows them to make an informed decision pertaining to the amount they are lending and avoid applications that can result in losses resulting from bad debts. In some cases, employers, too, check the credit score during the screening process.
With a lot of people opting for loans for buying homes, banks and lenders can approve or reject applications based on the credit score, apart from taking into account other important factors. Some banks and lenders have also set a minimum limit. Any applicant having a score below that limit is not entertained by them. Also, they offer benefits to those having a high score.
Now that you have known what credit score is and how it is used in the UAE, let’s now shed light on its calculation method. These are the major factors considered by AECB for giving a credit score to an individual:
If you missed making a bill payment on time, it could impact your credit score negatively as it is the major determining factor for defining your credit score. Bill payment history occupies the weightage of around 35% of the score.
The level of debt signifies the amount you have to repay pertaining to your credit card bill. Basically, it is the difference between the credit card limit and balance. Simply put, if your credit card limit exhausts frequently, it will have an impact on your score. It determines around 30% of the total credit score.
Credit history age refers to how long you have been using credit instruments i.e. bank account, credit card, etc. From the average age of every account you have to your oldest account, everything is taken into account to determine the age of credit history. It carries around 15% of the total score.
The type of credit account an individual has and how well they manage them also impacts their credit score. Two types of credit accounts can be owned by a person in the UAE, namely instalment loans and revolving accounts.
A revolving account gives the borrower a maximum credit limit without any maturity date. An instalment loan, on the other hand, has fixed regular payments with a maturity date. The better you manage both these accounts, the higher your score. Around 10% of the total score depends on this factor.
Like the type of credit account, the number of inquiries made, vis-à-vis credit also occupies the weightage of around 10% of the score. Bear in mind that a couple of credit inquiries wouldn’t impact the score, but several inquiries can adversely impact it.
Other than the aforementioned ones, there are numerous other factors such as age, nationality, etc. that contribute to determining the score. Also, it is a dynamic score, which means it can change from time to time, depending on these factors.
The only way to check your credit score is through AECB. You can either visit their office located in Abu Dhabi or Dubai with your emirates ID and other valid documents or apply for the same online.
For individuals, charges for getting a credit score is AED 31.50. However, if you also require a detailed credit report, you will have to pay AED 105.00. Companies can also get their score and credit report for AED 31.50 and 178.50, respectively.
Generally, a score over 700 depicts creditworthiness of an individual, which means it is a good credit score. If the score falls below 400, it is considered a poor score and applicants with this score are most likely to be rejected for loan applications.
Have a look at what your credit score says about your creditworthiness:
If you have had a misfortune of having a poor or bad score, it doesn’t mean it will stick to you for life. You can improve your score by following the ways discussed below:
First things first, never delay paying your bills. As clearly shown in the score calculation section, late payments have the most significant impact on the overall credit score. So, make sure to pay your bills timely.
If you have outstanding debt, try and get it cleared as soon as possible. Your first priority should be to get rid of any outstanding debt if you want to improve the score. Having said that, this doesn’t mean you should take new debt to clear off previously taken if you are not in a stable financial condition.
Managing multiple credit accounts simultaneously without missing their payments can positively impact your credit score. However, only get them if you can manage them properly.
Don’t make any delays when it comes to payment of taxes. Furthermore, ensure there are no credit inquiries in a short span of time.
There shouldn’t be any delay in the repayment of the loan(s) you have taken. The best way to avoid repayments is to make a payment schedule. It should include all your credit accounts, including bills, credit card payments and loan instalments. Make sure not a single payment is left unpaid by the end of the month.
There you have it! This is all that you need to know about credit score in the UAE, its calculation and what you can do to improve it. As clearly explained above, it makes for an integral part of your home loan pre-approval, so you must ensure it is on the higher side. Learn more how to improve your credit scores.