Having a good credit score can help you beyond getting a new credit card or loan.
Credit score in the UAE, a three-digit number, can have a considerable impact on whether you get new credit and on what terms. Applicants with a high credit score are preferred by lenders, which allows the former to even negotiate favourable terms and conditions while availing of loans, credit cards, and more.
You would be surprised to know that the importance of a high credit score extends way beyond credit! A good score can work in your favour when you seek insurance options, rental property, employment, and so on.
As we can see, it’s a pretty big deal to have a high credit score in the UAE. In that light, let’s explore the basics of credit score UAE before moving on to how you can improve your score.
What is a Credit Score?
Credit score, as we saw earlier, is a three-digit number that reflects your creditworthiness and how you have fared so far in managing your loans, credit card bills, and other expenses. The equation is fairly straightforward - with a high score, you are seen as a credible borrower who may present fewer risks for the lender.
The Al Etihad Credit Bureau (AECB) is responsible for calculating and issuing credit scores in UAE. The credit scores issued by AECB range from 300 to 900, with the upper limit marking the end of ‘very high’ credit scores.
What is AECB?
Al Etihad Credit Bureau (AECB) is an organization under the UAE Federal Government responsible for issuing credit reports. It was set up in 2014 to usher in transparency in financial transactions in the country.
This organization accumulates an individual’s financial information from banks, financial institutions, telecom companies, and more. It analyses the data and generates a credit report as per the guidelines.
For practical purposes, a credit report can be seen as an extension of your credit score. This report contains your credit score as well as data related to your credit history in the UAE including overdrafts, loans, credit cards, utility bills, and so forth.
In plain terms, your credit report provides a summary of your credit history. It indicates whether you have defaulted on your loan installments, whether any check has bounced, or whether you have paid their bills on time.
How Does a Credit Score Work?
Analysts at AECB employ statistical models to draw up data from your credit profile. Some of the data that are analyzed minutely include the payment history of previous loans, credit cards, telecommunication, and other utility bills.
After the analysis is completed, AECB comes up with your credit report and credit score. A key point to note here is that both individuals and companies can have credit scores. We will learn how the credit score is determined in the following sections.
Understanding the Calculation of Credit Scores in UAE
Let’s understand in more detail how to calculate AECB credit score in the UAE:
- Analysts at AECB track nearly 2,000 data points on a daily basis. Some of these data points include financial institutions, insurance companies, utility providers, telecom operators, and courts of the country.
- Your payment history is also analyzed by the bureau. This is the reason why financial experts emphasize the importance of paying phone and utility bills, insurance premiums, and credit cards by the due date.
- The analysts also take into account your loan and credit card repayments. In case of delayed payments, it is checked how late the payments have been.
- Other key factors that determine your creditworthiness include how many loans and credit cards you have as well as the credit limit used by you, which are considered indicators of your spending habits.
Understanding the Breakdown of Credit Score Calculation in the UAE
As we saw in the section above, AECB analyses your spending patterns and payment history to generate a credit report, based on which your credit score is calculated.
Let’s dive deeper and understand the exact calculation of credit scores in the UAE:
Bill Payment History – 35 percent of the score
Your bill payment history has more impact on your credit score in the UAE than other factors, with this factor making up 35 percent of your credit score. Note that if you fail to pay bills on time, you can expect a considerable negative impact on your credit score.
Debt Level – 30 percent
This simply refers to your usage of your credit cards and other debts as per the maximum permissible limits. You can also consider it as how much of your credit limit has been utilized by you. So if you use your credit card up to its maximum limit quite often, your credit score can be hurt.
Age of Credit History – 15 percent
The period for which you have been using credit instruments such as credit cards and bank accounts is referred to as the credit history age. To determine your credit history age, the age of all your credit is taken into account. Note that this factor determines around 15 percent of the total credit score.
Total Credit Inquiries – 10 percent
The number of credit inquiries that you have made makes for around 10 percent of the total credit score. It’s worth noting that occasionally inquiries don’t have a major impact on your credit score. Moreover, your credit score is generally not affected by soft inquiries, where you or an authorized individual checks your credit report. The major impact comes from hard inquiries, which take place when you apply for credit and the concerned bank or provider pulls your credit report.
Type or Mix of Credit Account – 10 percent
As a UAE resident, you can have two types of credit accounts - installment loans and revolving credit. While the former requires fixed regular payments and has a maturity date or tenure in which you are supposed to repay, a revolving account (like a credit card) offers a maximum credit limit without any maturity date. For a good credit score, you should have a good mix of both types of credit and a history of managing them well over time.
Credit Score for Individuals
As an individual, you can check your credit score anytime using the official website of the AECB. Alternatively, you can download the AECB app from the Google Play Store, register, and check your score after paying the specified fees.
Credit Score for Companies
Businesses can also get their credit reports from the official portal of AECB. Alternatively, one of their concerned individuals can visit a Customer Happiness Centre of AECB to obtain a credit report.
What is the Fee Structure for Credit Scores in the UAE?
Given below is the fee structure for checking credit scores in UAE online:
- For individuals seeking only their credit score — Dh10.5
- For individuals requesting credit score and credit report — Dh84
- For companies seeking only a credit score —Dh10.5
- For companies requiring credit report and credit score – Dh157.5
Documents Required for Checking Credit Scores in UAE
Listed below are the general documents that individuals and companies would require to check their credit scores in UAE:
Individuals
Here are the documents that an individual would be required to present -
- Copy of passport
- Original Emirates ID card (document must be valid)
- Email ID
Companies
Listed below are the documents required for companies wanting to check their credit scores in UAE:
- Trade licence
- Authorized letter from co-owner/manager/partner
- Authorized letter with signature of the concerned bank manager
It must be kept in mind that the lists of the required documents are standard. The bureau may request other documents and details at its discretion.
How to Check Your Credit Score in UAE?
The data contained in the AECB credit report is linked to your Emirates ID number and name. As a UAE resident, you can download the AECB app and follow these steps:
Step 1: Scan your respective Emirates ID properly.
Step 2: Register on the portal and set a new password.
Step 3: Select whether you want your credit score, credit report, or both.
Step 4: Pay the required fees to complete the transaction and receive the result.
While checking your credit score using the official AECB app can be a time-saver, you can also check your score from the official website of AECB. If online applications and transactions are not something you are comfortable with, you can always visit any of the AECB branches located in Dubai and Abu Dhabi.
Can Your Credit Score Change?
Short answer - Yes! Credit scores are dynamic and keep changing as your details get updated with respect to the factors that we discussed earlier. It must be kept in mind that your score can change both ways. When you become punctual with your repayments and get a good mix of credit, for instance, you may observe a positive change in your score. On the other hand, failing to repay your bills and installments on time can lead to a decrease in your score.
No Number Shown When Checking Credit Scores?
It may so happen that you won’t see any number when you check your credit score in UAE. Instead of worrying, however, you should note that a minimum period of credit history is necessary for AECB to generate a credit score.
Your credit score may not be displayed in the following instances -
- No credit information is available in your case for the previous 24 months.
- You are yet to avail of any credit.
- If your credit report has not been updated for the previous 12 months.
- You have not used your credit limit in the previous year.
- If the length of your credit history is below 6 months.
Which Factors Can Lower Credit Scores?
Your credit score can take a hit in the following scenarios -
- If you miss payments or repeatedly fail to make payments on time.
- If your cheque bounces.
- An error is present in your credit report.
- If you exhaust your credit card limit very frequently.
- You have closed some old accounts, which has reduced the age of your credit history.
It is always advisable to keep a tab on spending habits to maintain a good credit score. However, if your credit score has been reduced, you can always improve it. We will focus on this part in the next section.
Easy Tips to Improve Your Credit Score in the UAE
Here are some easy steps that you can follow to improve your credit score:
- Be Punctual with Your Credit Card Bills and Instalments
You can easily improve your credit score in the UAE by paying your credit card bills and installments on time. This way, you can demonstrate that you have financial discipline, which makes you an attractive borrower as well.
In case you find it difficult to remember the payment dates, you can use phone reminders or mark your calendars. You can also utilize the auto-pay feature to have the bills and installments settled automatically before the due dates.
- Clear Your Credit Card Bills in Full
While you can keep using your credit by settling the minimum amount due, financial experts generally recommend repaying your credit card bills in full to improve your credit scores. For this, you can use your credit card more efficiently or manage your budget better so that you can clear the dues to the greatest extent possible.
- Minimize the Number of Applications
Applying for multiple loans or credit cards within a short period is not advisable, as this can lead to a reduction in your credit score. So if your application for a particular credit product is rejected, you should first work on matching the eligibility requirements and improving your financial profile before applying again.
- Use Your Credit Card Smartly
While you can max out your credit card and use it to the maximum limit, it is advisable to keep your credit card usage in check to improve your credit score. As per financial experts, you should not use more than 30 percent of your credit card limit.
To achieve this aim, you can either limit your credit card usage or get a new credit card to increase your total credit limit. However, the latter step should be done with caution - using a new credit card irresponsibly can actually hurt your finances and credit score.
- Get a New Credit Card or Loan
Another effective way to improve your credit score is to get a new credit card or a small loan that you can repay easily. This can improve your credit mix, which, as we saw before, can improve your credit score. Another benefit of this measure is that you can show yourself as a responsible borrower, although this would apply only if you repay the loan or credit card bills on time.
Final Words
Credit scores in the UAE, as we saw in great detail above, make for an important indicator of your creditworthiness. Having a good credit score can help you beyond getting a new credit card or loan — even lenders, real estate owners, and employers check this score to understand your financial behaviour over time.
With a good credit score, you can easily get credit approvals at favourable terms. However, even if your score is low, you can follow a few easy steps and improve your score over time.
News Source: Khaleej Times
