Credit Cards and Credit Score: Take Control of Your Finances with Expert Advice

Credit cards are an invaluable tool for managing finances during times of cash crunch. Over the years, they have become an essential part of our lives, thanks to their convenient usage and simple repayment options. They also offer a range of benefits in terms of discounts, deals, and offers, making them an incredibly popular financial product. Unfortunately, there is still a lot of mystery surrounding credit cards in the UAE. To help unravel this mystery, Policybazaar UAE invited Ms Tina Malhotra, Business Head (Banking Policybazaar UAE) to provide an in-depth insight into credit cards and how you can make the most of these financial tools in the UAE.

Tina opened the discussion with an explanation of credit limit, noting that it is the maximum amount a customer can spend using their credit card, and is typically determined by the bank. She added that it is important to understand that this limit is subject to change, and is based on factors such as a customer’s profile, repayment pattern, and card utilization. Generally, the credit limit is updated every 6 months.

Once you have been using your credit card for at least 3-6 months, you may be eligible to apply for a Credit Limit Increase (CLI). According to Tina, the bank will consider your Al Etihad Credit Bureau (AECB) credit report and your income when determining whether to grant you a CLI. However, the most significant factor for being approved for a CLI is how consistently you have been paying your credit card bills.

Another important factor to consider when using a credit card is the benefits it offers. According to Tina, the three main reward and loyalty programs in the UAE are Cashback, Airmiles, and Reward Points. Cashback is the most popular of these programs, as users can receive immediate value back on their monthly credit card statement. Additionally, Airmiles and Reward Points users for making purchases and can be redeemed for various rewards, such as flights and discounts. Understanding the different rewards programs is essential in making the most of your credit card.

Applying for a Credit Card in the UAE

You can apply for a credit card in UAE both online and offline. Scan or upload your UAE pass, Emirates ID and passport for a contactless approach. To qualify, you must have a fixed monthly salary of AED 5,000 with no variable component. Banks usually prefer selling credit cards to salaried people only, and only salary credited into the bank account is considered; cash or cheque payments cannot be used.

The bank considers various factors when reviewing credit card applications, such as salary credits (1 month for listed companies), income, internal scoring (9-12 months bureau history), credit utilisation ratio, debt burden ratio (5% of credit card limit), and your AECB credit score (the major factor).

Credit Score - TheWhat’s and How's

The al etihad credit bureau (AECB) in the UAE authorizes credit scores and credit reports for credit card holders. Tina noted that lower scores indicate higher risk. The AECB outlines four credit score ranges: 300-619 (bad credit score), 620-679 (fair credit score), 680-730 (good credit score), and 731+ (excellent credit score). However, it varies by bank. If an applicant hasn't applied for a credit card or loan, the bureau won't release a credit score; they must have a 6-12 month bureau history. Those new to the UAE must show 3 months' salary credit to apply for a credit card.

Effects of Credit Enquiry on Credit Score

Tina said applying for a credit card or loan results in a hard enquiry that affects credit score. The more frequently these applications are made, the greater the impact. Payment history is the biggest factor in credit score, contributing 35%; late payments can have a negative effect. In case of one mispayment, the customer's credit score will be negatively impacted. It is advised to make a minimum payment of 5% of the balance on the credit card statement.

Can you improve your credit score?

The answer to this question is a resounding yes. Thus, one must always focus on improving credit score. Tina shared several helpful tips to improve one's credit score, such as making payments on time and before the due date, not writing bounced checks, minimizing the number of credit cards and loans, and lowering the amount of credit used in relation to the credit limit.  

Checking Credit Scores in the UAE

Following this informative conversation, Tina explained how both UAE nationals and ex-pats can check their credit scores. The AECB app is a reliable source, requiring a fee of AED 10 exclusive of VAT to download the score. Additionally, Policybazaar UAE also offers a digital platform to check credit scores. We are also running the biggest credit awareness programme in the UAE, providing customers with the ability to pull their credit scores in real time after fulfilling certain soft eligibility checks. Moreover, a major benefit of checking a credit score through Policybazaar is that the customer does not have to pay any costs to access the score, nor does it impact the credit score.

Using credit cards responsibly can be highly beneficial, as it can help build a good credit score. A good credit score can open the door to more affordable loans and higher credit limits, allowing people to make sound investments in their financial future. By taking the time to build and maintain a good or excellent credit score, people can greatly improve their financial security and increase their long-term stability..