What does a 400 credit score mean?

In the UAE, a credit score is a crucial indicator of one's financial stability and creditworthiness. Financial institutions rely on this score to evaluate the creditworthiness of individuals and determine their eligibility for loans, credit cards, and other financial products.

A good credit score not only increases the chances of getting approved for loans but also leads to better interest rates and repayment terms. On the other hand, a low credit score can have adverse effects on one's creditworthiness and financial future.

A credit score of 400 is considered a poor score in the UAE and can adversely affect your creditworthiness. Individuals with such a score may find it challenging to get approved for loans or credit cards. Moreover, even if they get approval with such a score, they may face higher interest rates and unfavourable repayment terms. Additionally, a low credit score can also negatively impact the ability to rent an apartment, buy a car or a house, or even get a job.

What Does Credit Score Mean?

In simple terms, a credit score is a 3-digit number that lies in the range between 300 to 900. This 3-digit number defines your creditworthiness as a borrower and enables you to get a favourable credit product in the UAE. The closer your credit score is to 900, the more the chances of you getting your application for a loan, credit card, or insurance approved.

Your credit score, which determines your financial credibility, is calculated based on factors like your payment history, credit history, open bank accounts, financial position, bounced cheque details, and more. Any defaults in your payment history or credit history can last for up to 5 years on your credit report.

The credit score range followed by most banks and lending institutions in the UAE is as follows:

• Bad Credit Score Range - 300 to 619
• Fair Credit Score Range - 620 to 679
• Good Credit Score Range - 680 to 730
• Excellent Credit Score Range - 731 and above

Who Calculates Credit Scores in the UAE?

In the UAE, your credit score is determined by a Federal Government body called al etihad credit bureau (AECB). The credit bureau takes information from banks, telecommunication companies, and even courts to determine your credit score UAE.

The data and the score generated by the bureau are used by telecom companies, banks, and other lending institutions to check your profile and creditworthiness when you apply for a credit product.

The following are the factors that constitute your credit score in the UAE -

• Bill Payment History - 35%
• The Extent of Personal Credit Card Debt - 30%
• Credit History - 15%
• Types of Open Credit Accounts - 10%
• Frequency of Credit Inquiries - 10%

What Does a 400 Credit Score Mean?

In the UAE, a 400 credit score falls under the bad credit score range. It implies any or all of the following-

• You have been skipping credit card payments.
• You have delayed repaying instalments for your loan. 
• You have abruptly closed an old credit card.
• You have been irregular with using credit cards.
• Your financial situation has changed drastically (for the worse).

A 400 credit score makes it difficult for you to avail of any personal, home, or auto loan, not to forget the difficulty in applying for a credit card too. Chances are high that your application will be directly rejected by the bank as you fail to meet the minimum credit score requirement. Even if you, by some miracle, get a loan or credit card, the interest rate payable would be higher than what you would be able to pay.

Furthermore, telecom companies look into your credit score before letting you open a new account. If your credit score is 400, you would be required to pay a (refundable) security deposit.

Renting an apartment can also prove to be a costly affair with such a low score, as landlords would ask you for a high deposit amount. They may also need you to pay the rent for the first and the last month in advance as you would be recognised as financially risky when it comes to paying the rent.

Credit Cards for 400 Credit Score

If your credit score is 400, you cannot get an unsecured credit card in the UAE. In fact, you would not be eligible to apply for a credit card. However, there are some options and alternatives that you can go for -

• Secured Credit Cards - Usually, credit cards are regarded as an unsecured type of finance product and are issued based on your creditworthiness as a borrower. Since your credit score is 400, the bank or lending institution will not approve your credit application for an unsecured credit card. In such a situation, you can apply for a secured credit card. For getting this kind of credit card, you need to pledge a high-value asset as collateral. Note that this alternative is an effective way to build your credit score. By making timely and consistent payments, you can build your aecb credit score and move towards unsecured credit cards.  
• Credit Card from Your Primary Bank - If you have been a long-term customer of a bank, chances are that they have a better understanding of your finances and risk profile. It is, therefore, advisable to secure a credit card from your primary bank and start off building your credit score. 
• Store Credit Cards - With a 400 credit score, you can also apply for store credit cards. These types of credit products (which could be either secured or unsecured) offer you rewards to shop at a particular retail outlet. You can use this credit card to build your credit score in the UAE. 

Personal Loan for 400 Credit Score

Getting a personal loan is usually a far-fetched thought if your credit score is 400, as lenders and banks would mostly reject your loan application with such a low credit score. If, in some miraculous scenario, your personal loan gets approved, you would need to pay a high interest rate.

This whole scenario can make a personal loan an unappealing option for you, particularly if you want to secure the loan to consolidate your high-interest credit card debt. However, if you aim to secure a personal loan for making a major purchase, it is recommended that you rethink whether you need the product right now.

If your answer is a ‘No’, consider working on building your credit score so that you can qualify for a personal loan at a lower APR in the future. In case you are facing a slight cash crunch, you should opt for a payday loan, which is a short-term loan with a slightly high fee and interest rate. So before going for a payday loan, look for other options as well. 

Home Loan with a 400 Credit Score

Usually, the average credit score required to apply for a home loan in the UAE may vary. However, if your credit score is 400, it is quite difficult to qualify for a home loan in the country. For starters, the bank or the lending institution can right away reject your application on the grounds of a low credit score.

Even if they approve the mortgage loan, they would levy a high interest or profit rate to cover for the potential risk. You might also be asked to provide a major portion of the property value as a down payment. 

Auto Loans for a 400 Credit Score

There is no particular credit score requirement when you apply for a car loan in the UAE. However, if you have a credit score of 400, it can be challenging to get a car loan application approved. Even if your loan gets approved, the interest rate payable will not be in your favour and you would be charged a high interest rate.

To get a home loan despite a credit score of 400, you can follow the strategies mentioned below:

• Consider applying for a car loan with a co-applicant (a trusted family member like a spouse or a trustworthy friend) who has a good or excellent credit score in the UAE.
• Secure loans from credit unions or online lenders.
• Connect with the dealership and find out if their financing department also works with people with poor credit scores like 400.
• Make ‘buy here, pay here’ the last financing resort.

400 Credit Score and Insurance Plans

Unlike the popular belief that credit score does not influence your insurance plan application, a 400 credit score can hurt your insurance applications and the premium rates. This is because insurance companies look at all the major financial events listed on your credit report.

Any negative information in your credit report can cause the insurance company to reject your insurance application, no matter how healthy you are physically and mentally. It can, thus, become difficult to avail of any type of insurance from life insurance to car insurance and health insurance in the UAE. 

How to Get Loans for a 400 credit score?

While it may seem impossible to secure a loan with a credit score like 400, there are some alternatives you can go for in the UAE -

• Get a Joint Loan or a Guarantor for Your Loan - You can apply for a personal loan/home loan/car loan with someone who has a good credit score in the UAE. This co-applicant can be your spouse or any other family member who has potentially stable financial earnings. In case you are unable to repay the personal loan on time, your co-applicant can help in settling the loan.
• Go for a Secured Loan - If you are in dire need of a personal loan or a home loan in the UAE despite your 400 credit score, you can also present collateral against the loan. The collateral could be shares, fixed deposits, gold, property, or any other high-value assets. 
• Provide Proof of Income to Prove that You Can Repay the Loan - Even if you have a credit score of 400 but you had a hike in salary or have an additional income source, the lender can allow you to apply for a loan. If you provide evidence that you have a secured job with a constant income flow, the chances of getting the personal loan approved may increase. 
• Work on Building Your Credit Score - Even if you do not have to apply for a loan at the moment, it is recommended that you still work on improving your credit score in the UAE. For this, make sure you pay your monthly instalments, utility bills, and credit card bills on time. You should also focus on restructuring your spending habits.

Building Credit – What Can You Do to Improve Your 400 Credit Score?

Discussed below are some strategies to build your 400 credit score in the UAE -

• Deposit Extra Funds in Your Bank or Credit Card Account - You increase the chances of enhancing your credit score when you deposit extra funds in your credit card or bank account in the UAE. All you need to do is pay a bit more than the remaining amount at the end of your credit card billing cycle to add some additional funds to your credit card. 
• Pay Your Bills on Time - If you want to build your 400 credit score, you should avoid any delay in paying your credit card and utility bills. This also extends to paying off your monthly instalments for ongoing personal loans, home loans, and car loans in the UAE.
• Clear off the Existing Dues - Pay off all your current debts on or before the due date if you want to improve your 400 credit score in the UAE. To clear the dues the right way, you can opt for balance transfer, buyout loan, cash-in-advance, and more. 
• Avoid Applying for Multiple Loans at Once - When you apply for multiple loans at once, the bank performs a hard enquiry on your credit score, which ends up hurting your credit score. While one enquiry may not do much damage, multiple enquiries certainly can. Moreover, multiple applications can present you as someone who is not able to manage their funds effectively. You should, thus, avoid applying for several loans or credit cards in a short period. 
• Manage Your Existing Credit Cards Smartly - If you already have credit cards, use them as per the terms and conditions stated by the bank. Make sure you do not leave any credit card account dormant as it can further hurt your credit score. You should try and make certain payments using each credit card to avoid your credit score from getting negatively impacted.

To Conclude

It can be extremely challenging to avail of a credit product or an insurance plan in the UAE when your credit score is as low as 400. There is a high possibility that your credit card or loan applications will be rejected on the grounds of your credit score of 400.

With that said, there are some alternatives that can help you get a loan or credit card at this score. However, it is important that you use this as an opportunity to build your credit score. For instance, you can opt for a secured credit card and make timely bill payments to avoid further hurting your credit score.

Furthermore, you should focus on building your current 400 credit score. For this, focus on repaying loan instalments on time, using credit cards wisely, and avoiding applying for several loans and credit cards at once.

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