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Credit score is a vital parameter used by banks and financial institutions to determine an individual’s creditworthiness and their track record with debts. The introduction of credit scores by the Al Etihad Credit Bureau (AECB) has served to transform the credit and lending sectors in the UAE to a great extent.
However, it is essential to note that verifying the AECB credit score was earlier a tedious task. This was changed in 2021, when Policybazaar UAE collaborated with AECB to allow the former’s users to verify their credit score. The transformation came in the form of the verification costs, as Policybazaar UAE will bear the expenses. So unlike previous times, its users will be able to check their credit score for free.
The importance of building credit score cannot be overstated. Whether you are applying for a credit card in the UAE or personal loan in the UAE, your credit history concerning repayments is the usually first aspect observed by the provider. The simplest way for the provider to check that information is to have a glance on your credit score. And this score has major implications. In the best-case scenarios, individuals with a bad credit score usually end up paying a higher rate of interest, with the rejection of loan or credit card being the possible cases in the most unfavourable ones. So if you are looking forward to getting any form of credit in the UAE be it a credit card or personal loan, maintaining a healthy credit score is non-negotiable.
While the credit score may appear intimidating, building credit score in an optimal manner is pretty straightforward. If you know the fundamentals of how to build credit score, you can easily create a satisfactory credit score to ensure a seamless experience in availing any credit services in the UAE.
The first step towards building a strong credit score is to make timely repayments in terms of your financial obligations. Avoid delaying your repayments by even by a day as it can negatively impact your credit score in the long run.
Keeping track of due dates can often prove challenging, with multiple obligations of life to be fulfilled. A great way to solve this concern is to choose the option of auto-debit, which ensures that your repayments are made on time.
For people travelling abroad, this could still prove difficult as making the payment outside of the UAE is challenging. In such instances, it is recommended to pay the due amount a week before, which makes sure that your credit score remains unaffected.
With multiple lucrative offers available in the lending market in the UAE especially in Dubai, it can be difficult to resist such credits and loan services. However, this has a direct impact, as the more sources of credit you have, the higher will be the probability of a low credit score. Consequently, another major step towards building credit score in UAE is to review and assess your credit cards and loans with various other financial obligations.
An excellent place to start here is to eliminate the unnecessary credit facilities that you are unlikely to use in near future, as all unused forms of credit adds to the Debt Burden Ratio (DBR). For instance, if you have four credit cards but you use only one out of them and submit only that one to the bank closure, the other three would still add to your DBR and affect your credit score.
The debt burden ratio (DBR) ties to your income, which gives you a better idea of maintaining your finances. As per the guidelines in the UAE, anyone having a debt burden ratio of 50% or above would be ineligible for additional credit. So if your total outstanding financial obligations like loans or credits are higher than 50% of your total income, you can avail more credit only by reducing your existing debts..
As mentioned earlier, even the unused cards have a significant impact on the credit score. And while most of the people have at least one credit card in the UAE, several people also have multiple credit cards from multiple providers who are on the verge of maxing out their cards. However, if you simply cut and throw unused credit cards in the UAE, you wouldn’t be able to avoid their impact on your credit score. Consequently, if you wish to take a meaningful step towards building credit score in the UAE, you should follow a proper procedure to get rid of these cards.
You can visit your bank with all these cards and fill the closure form, which is the right way to close these credit cards in the UAE. Once your bank accepts the closure form, they will check your record and handover you a No Dues certificate. This certificate is crucial as closure reports are not updated on the servers of the Al Etihad Credit Bureau at times. In this case, the certificate can sufficiently serve as a document proof.
Ideally, one should try and pay their entire credit card bill completely at once. Paying your credit card bill on time (and completely, if possible) helps you maintain both your credit score and a peace of mind. However, one may often deal with financial instability. In this case, you might go for the option of minimum payment.
One aspect to be kept in consideration is that making minimum payment of your credit card dues leads to the imposition of interest rate. This may lead to an increase in the payable amount, and failing to repay that for a long time can affect your credit score. The tip here is to make a large payment of the outstanding amount at once, whichwill reduce the debt and improve the credit score.
The governing body that looks after credit ratings and scores is called the Al-Etihad Credit Bureau. It was established by the state reportedly in 2014. The highest possible credit score is 900, whereas the minimum is 300. While a healthy credit score is subjective, any number between 500 and 700 is generally considered satisfactory. And as the credit report is just a mirror image of your handling of debts, You can easily achieve a better credit score by efficiently managing your debts and loans.. Try to inculcate healthy spending habits in your regular expenditures, so that even if you need to avail any credit, your credit score isn’t affected much. Add some determination to the above-mentioned steps, and you can build a strong credit score to help you get all types of credit if required in the future.