5 Tips to Build a Powerful Credit Score

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  | Published: 22 May 2020 | Last Updated On: 22 October 2021

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Credit score is a vital tool that is used by banks and financial institutions to determine the creditworthiness of an individual and their track record with debts in the past. The lending industry has been completely transformed after the introduction of credit scores by the Al Etihad Credit Bureau.

If you apply for a credit card in UAE or personal loan in UAE the first thing that the provider takes a look at is your credit history and punctuality in making repayments. It is important to be aware of the fact that individuals with a bad credit score might end up paying a higher rate of interest in the worst-case scenario their loan application might be rejected.

The credit score is not just a vital detrimental factor in the case of personal loans but plays an equal role in the approval and disbursement of credit cards in the UAE. If you are looking forward to getting any form of credit in the UAE be it a credit card or personal loan it is crucial to maintain a healthy credit score.

But now the question arises, how do I do that?

Below are some of the best-handpicked tips to help you build a powerful credit score in the UAE.

Do not Miss out on Repayments

The first step towards building a strong credit score is to make timely repayments of your financial obligations. Never delay your repayments not even by a day as it has a negative impact on your credit score in the long run.

 If you are somebody who has a habit of forgetting due dates you can always choose the option of auto-debit to make sure your repayments for financial obligations are made on time. An important tip here is that if you are traveling abroad and it’ll be difficult for you to make the payment outside of the UAE try and pay it a week before so that your credit score is not affected.

Assess Your Credit Cards and Loans

The lending market in the UAE especially in Dubai comes up with quite lucrative offers that are hard to resist and many go ahead and opt for these lucrative credits. The more sources of credit you will have higher will be the probability of a disturbed credit score. Therefore, the second step towards building a strong credit score in UAE is to review and assess your credit cards along with various other financial obligations.

Try and eliminate all unnecessary credit facilities that you are not likely to use in the next 3 to 6 months. Every unused form of credit adds to the Debt Burden Ratio (DBR). To understand this, let's keep it this way, if you have four credit cards and you are not using three out of four but haven’t submitted them to the bank for closure, they would still add to your DBR which will affect your credit score.

According to the guidelines set up by the central bank anyone approaching a death burden ratio of 50% would not be considered eligible for additional credit. If your total outstanding financial obligations are higher than 50% of your total income, the only way out to avail more credit is to reduce your existing debts. A debt burden ratio is an excellent tool that helps banks as well as individuals to determine how much more credit can they get.

Get Rid of Unused Plastic

We all have at least one credit card, but that’s not the end. There are people who have multiple credit cards from multiple providers who on the verge of maxing their cards. If you have unused credit cards in the UAE, you shouldn’t just cut them up and throw them in the trash. There is a proper procedure to follow by which you can 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 certificates. This certificate is very important because at times closure reports are not updated on the servers of the Al Etihad Credit Bureau so this act as a documented proof.

Try and Pay Your Credit Card Debt in Full

Ideally, we should try and pay our entire credit card bill completely at once, however, if you are dealing with financial instability you might go for the minimum payment. Paying your credit card bill on time, that too completely, not only helps you to maintain your credit score but always attain peace of mind.

Making minimum payment of your credit card leads to the imposition of interest rate which increases the payable amount and will affect your credit score. The tip here is to make a large payment of the outstanding amount at once that will reduce the debt and improve the credit score.

You Are Solely Responsible for your Credit History

People stuck with poor credit scores often blame banking/ financial institutions tools and products. In reality, your credit report is just a mirror image of how you handle debts. The more efficiently you manage these debts the better your credit score will be. On the other hand, the more irresponsibly you use your debts or make repayments the poorer your credit history will be. Try and inculcate healthy spending habits so that you need to avail less credit and even If you need it, you end up managing it in a better way.

In a Nutshell

The governing body that looks after credit ratings and scores is called the Al-Etihad Credit Bureau which was established by the state in the year 2010. The highest possible credit score is 900 where the minimum is 300. A healthy credit score is subjective however, it lies between 500 to 700.

With the above-mentioned steps and a firm determination, you can build a strong credit score that will help you get all types of credit you need in the future.