Credit Score in the UAE - All You Need to Know
Remember the time when you were a student? Academic results were the thing that feared you the most. You were afraid of bad grades. But little did you know that in life you won’t be judged on the basis of academic scores, there was much more to come.
You might have thought there will not be any exam, test or critical evaluation to deal with in upcoming life but, you were wrong. Life is full of tests, and evaluation you are being constantly judged on numerous levels by some scores or the other. This article will talk about one such score that is, Credit Score. Check out this article to know everything about credit score in UAE.
What is a Credit Score?
To understand credit score, first, let us look at the meaning of credit report. It can be defined as a detailed breakdown of an individual's responsible repayment of debts. It is prepared by an authorized government organization by gathering a person’s credit history from numerous sources such as banks, credit card providers, lenders etc. In the UAE, the concerned organization is the Al Etihad Credit Bureau (AECB). The organization was set up by the federal government of the UAE in the year 2010.
Let’s understand the credit score now.
Credit score is an advanced version of a credit report that was introduced by AECB in the year 2018. It is a statistical number that that evaluates a consumer's creditworthiness. In simple words, it is a three-digit number that predicts how likely an individual is to make credit card and loan repayments. The number ranges from 300 to 900. Higher the score, less risky you are to lend.
What Is The Credit Score Used For?
Credit Score is primarily used to assess the potential risk posed by the lender while lending money to the borrower. This evaluation helps the lending company mitigate its losses due to bad debt.
In other words, evaluation of credit score helps financial institutions make better-informed decisions to process loan and credit card applications at a faster pace. It also let the financial institutions provide preferential benefits for those with high scores.
How is Credit Score Calculated?
Credit Score in UAE is calculated by the Al Etihad Credit Bureau (AECB). It is a dynamic number that is calculated by analysing an individual’s credit history. AECB accesses credit history through various sources such as banks and finance companies. Depending on the recent credit report, the score may change from time to time.
A few factors that may impact an individuals’ credit score are:
- Bill Payment History
It determines nearly 35% of the credit score. Any missed or delayed payment can affect the score negatively.
- Level of Debt
It determines nearly 30% of the credit score. Total debt that you carry is determined by the ratio of the credit card balance to the credit limit. This means that frequent exhausting of entire credit limit affects your score.
- Age of Credit history
It determines nearly 15% of the credit score. The age is determined by considering both the age of your oldest account as well as the average age of all your account. Older the age better is the credit score. This is because older credit age means that you have a good experience in handling credits.
- Types of Credit Account
It determines nearly 10% of the credit score. There are two types of credit accounts - revolving account and instalment loans. How well you manage both accounts indicates your experience in managing credits.
- Number of Credit Inquiries
It also determines nearly 10% of the credit score. One or more inquiries won't affect your credit score but several inquiries in a short interval of time can lower your score.
How can I Check Credit Score in UAE?
To check your credit score in the UAE, you may contact the AECB office either in Dubai or in Abu Dhabi. To request for credit score you will need to provide your Emirates ID and other Identification documents along with a request form.
AECB charges AED 60 + VAT to provide you with your credit score.
How can I Improve My Credit Score in UAE?
You can easily improve your credit score. It just requires careful planning. Just follow the following steps:
- Make timely bill payments
- Reduce outstanding debt
- Try managing more than one credit account
- Avoid negative elements such as delinquency, bankruptcy, hard inquiries, delay in repayment of debt and no payment of taxes
Now that you know all about the credit score you can’t deny the importance of having a good score. So, if you are having a low credit score, start improving it right now.