How Do Credit Inquiries Affect Your Credit Score in UAE?

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If you are trying to build up or improve your credit score or getting ready to apply for a new credit tool, it is essential to know how credit inquiries will impact your credit score. Credit inquiries are one of the many determinants of your credit score, taking up to 10% of weightage in credit score calculations. Though credit inquiries are just a tiny nick in your credit score, tracking down how they work is important.

The article answers several questions including, what are credit enquiries, types of credit enquiries, how much will my credit score decrease for each inquiry, and more. Let’s start with answering the base question:

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What is a Credit Inquiry?

Credit inquiry refers to a request made by potential lending institutions, borrowers and employers to look at your credit file, which includes your credit report and credit score. In UAE, Al Etihad Credit Bureau (AECB) keeps a record of all the credit inquiries on your report which gives a quick overview of how you manage your finances. 

For instance, Mr Abudullah wants to purchase a new car and decides to obtain a loan for it. He approaches the bank, qualifies for the eligibility criteria, submits the required documents and fills out the car loan application form. The lending institution will now pull out Mr Abudullah’s credit file to assess his financial behaviour. Mr Abudullah has had a steady job for 2 years, doesn't have any outstanding debts and pays his utility bills on time. Based on the credit inquiry, the lender decides to grant him the credit at nominal interest rates.

The credit inquiry made by the lender helped in examining Mr Abuullah’s level of financial stability, responsibility towards his dues and the likelihood of missing a payment/repayment. Note that, the credit inquiry made by the lender will leave a mark on Mr Abullah’s credit report.

Now, let’s examine the two types of credit inquiries: hard credit inquiry and soft credit inquiry. Here’s how they differ.

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Hard Credit Inquiries 

Hard credit inquiries, often called 'hard pull', occur when a lending institution, with whom you have applied for a credit tool, reviews your credit report as a part of its decision-making process. Hard credit inquiry signifies that the lender has requested AECB to share the applicant's credit report and assess the risk of lending money after they sent the credit application. Every hard enquiry on your credit profile ultimately affects your credit score.

Hard credit inquiries are commonly drawn in the following cases:

  • When applying for a car loan
  • When applying for a personal loan
  • When applying for a new credit card
  • When applying for a mortgage

Soft Credit Inquiries 

Soft credit inquiries often called 'soft pulls', occur when you check your credit report or score or when companies/employers pull your credit report to conduct background checks or pre-approve a credit offer. Soft credit inquiries are generally not included on a credit report and do not impact your credit score significantly. 

Soft credit inquiries are commonly made in the following cases:

  • Checking your own credit file
  • A lending institution pre-approving your loan application
  • A potential employer or landlord examining your credit file with your consent

How Does an Inquiry Drop Your Credit Score?

Depending on the type of credit inquiry, your credit score is impacted in the following ways:

Hard Credit Inquiries

Generally, AECB deducts up to five points from your credit score for each hard enquiry made. This means that the credit score of the user is not affected significantly by one or two credit checks. Although, numerous hard credit enquiries lead to a compounded effect and reduce credit scores significantly. 

This is why it is recommended to shop around a little, determine the features and eligibility criteria of different credit products and apply for only one when you are sure about your choice. Multiple hard credit enquiries made during the shopping around period are considered as 'single inquiry' by AECB under the 'rate shopping period'. This reduces their impact on your credit scores. We will talk about the rate shopping period in detail in the next section. 

Soft Credit Inquiries

Soft credit inquiries are not a part of your credit report and don’t have any impact on your credit score.

Rate Shopping Period: Hard Inquiries ‘Grouped’ as One

As mentioned earlier, hard inquiries adversely impact your credit score because frequent credit applications indicate higher risk and credit-hungry behaviour. However, rate shopping is an exception to this rule.

When you apply for student loans, car loans and mortgages, the credit bureau comprehends that you, as a borrower, will need to shop around a little to get the best loan terms and interest rates. The credit agency groups all enquiries made during this period into one hard inquiry on your credit report under the rule of 'rate shopping period'. This is irrespective of the number of lenders who have done the hard checks. When you take time to conduct thorough research in the market to get the best deal, it depicts financial responsibility and not credit-hungry behaviour. 

The time duration of the rate shopping period often varies. For some analysts, it is 14 days, while for others, it may extend up to 45 days, depending on the applicant’s credit scoring model. To be on the safe side, try to do your rate shopping within two weeks.

How Long Do Inquiries Stay On Your Credit File?

Hard credit inquiries remain on your AECB credit report for two years. But your credit scores are only impacted by them for a year. Soft credit enquiries are not reflected in your credit file.

How to Manage Your Credit Inquiries?

While soft inquiries are not part of your credit report, mismanagement of your hard credit enquiries can dip your credit score substantially. Here are the tips for managing the impact of hard enquiries:

Send Limited Applications 

Apply for the new credit tool only when you require it. Unnecessarily applying for new credit facilities and getting rejected will substantially impact your score. Before applying for any credit card or loan, take time to conduct market research to find products that meet your specific financial needs ideally while considering eligibility requirements. 

Check Your Credit Scores

Check your credit report from time to time to ensure that all hard enquiries are authentic and made solely by you. In addition to that, you can dispute any hard inquiries made without your permission. It is recommended to check your credit score once every three months. 

Plan Before Obtaining a Loan

Proactively plan your finances before taking out a loan. Gaining a better understanding of how loan applications work will help you better prepare for the process. Educating yourself about credit inquiries before you go loan shopping is advised, so you can be ready to nullify their impact on your credit score.

Can You Remove Hard Inquiries From Credit Report?

Removing an inquiry from your credit report is not possible unless it is the outcome of fraud or identity theft.

Let’s see how you can dispute inaccurate inquiries from your credit report:

If you spot an illegitimate hard inquiry on your credit report, it is essential to get it removed, as it will drop your credit score by at least five points. Here's how you can dispute and remove the inaccurate hard credit inquiries and iron out your credit file:

  • Visit the official website of Al Etihad Credit Bureau (AECB).
  • Head to the ‘data correction’ tab and fill out the form given.
  • The form requires details like full name, emirates ID, date of credit report purchase, information provider name, AECB subject ID, etc. Attach the relevant documents along with the credit report (if available).
  • Applicants can dispute the latest credit reports only.
  • AECB works in tandem with the lending institution to resolve disputes. The request is sent to the concerned information provider immediately after your submission. The information provider will respond to you within 10 working days, as per the guidelines of the Central Bank of the UAE.

If the result of an investigation is in your favour, AECB will remove the inquiry. If not, AECB will send you a justifiable explanation.

How Many Credit Inquiries Are Too Many?

There is no specific number for how many credit inquiries adversely impact your credit file and report. That’s because the impact of hard inquiries is based on an applicant's financial health and credit score.

Since hard inquiries drop your credit score, it is probably best to avoid having too many on your credit profile. Simply put, too many credit inquiries will be any number higher than your credit needs. Make sure to apply for credit only when you require it so that you don't negatively affect your credit score.

How to Check your Credit Score in UAE for FREE?

It is essential to check your credit score from time to time and record it to track progress or to simply keep tabs. The official Policybazaar UAE website allows you to check your credit score based on your official AECB credit report. The AECB credit score is automatically pulled from the AECB system allowing Policybazaar customers to apply for credit cards and loans without additional hassle. Policybazaar UAE bears the cost of checking your AECB credit score making it free for you!

In Conclusion

In UAE, every lending institution will grant you credit only after evaluating your credit report and score. Thus, it is very important to keep a check on your credit score. Several factors make up the credit score, and credit check/enquiry is one of them with 10% weightage in the calculations.

Once you understand how credit checks work, you can make a well-informed decision about what type of credit facility you can apply for and how to run the application process. Even if your credit score depletes due to hard credit inquiries, you can bounce back and manage it efficiently. Simply remember to not apply for too many credits at once and rack up a bunch of hard credit inquiries. You can take assistance from experts at Policybazaar UAE and make smart decisions about your credit applications. 

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