A Guide to Establishing Credit for the First Time

Embarking on your financial journey in the UAE? One key aspect that you cannot afford to overlook is building your credit report. Whether you are a first-time user or new to the UAE, establishing a solid credit history is vital.

Why, you may ask?

Well, think of your credit report as your financial passport to opportunity. It opens doors to obtaining loans, securing favourable interest rates, and even renting an apartment. Your creditworthiness speaks volumes to potential lenders and landlords, painting a picture of your trustworthiness with money. As a first-time user, this is your golden chance to lay a strong foundation for your financial future.

In this article, we will dive into the importance of building your credit report in the UAE and equip you with valuable insights and strategies to kickstart your credit journey on the right foot.

Why Should You Establish Credit as a First-Time User?

Your credit report plays a crucial role in indicating your creditworthiness as a borrower in the UAE. Your credit report details depict how well you have managed your credit instruments so far and enable lending institutions to gauge whether you would be able to easily repay the debt in the future. So if you have not built your credit in the UAE as a first-time user, lending institutions will not get an idea about how reliable you are with your funds. This can lead to your loan application getting rejected or at least some difficulties in the process.

Establishing good credit for the first time can help you get your credit application approved and at the best interest rates payable. If you have never worked on building credit, however, you may have a low credit score as there would be no proof of what kind of borrower you have been. 

How to Establish Credit As a First-time User?

While you can build your credit in a number of ways, it is important to use the right strategy to build credit for the first time in the UAE. Make sure you use your credit responsibly, spend within your limit, and pay bills on time.

Here are some ways to build credit for the first time in the UAE -

• Apply for a credit card - The absence of credit history can make it challenging to apply and get approval for a conventional unsecured credit card. Here are the types of credit cards you can apply for -

1. Secured Credit Card - When you apply for a secured credit card, you need to keep a certain amount as a security deposit against the credit limit provided to you. Note that this amount gets refunded later. 
2. Retail Store Credit Card - This card offers lower credit limits and gets approved easily.

• Become an Authorised User - If a close friend or an immediate family member is willing to make you an authorised user of their credit card, do consider the opportunity. This way, you will receive a supplementary card to make purchases. As a supplementary card holder, you can get advantage of the primary card holder’s credit history. This also implies that if the primary cardholder forgets to pay the credit card bill, it will affect your credit as well. Thus, make sure to check how the primary cardholder manages their finances. 
• Set up a Joint Account or Find a Co-Applicant for a Loan - You can also establish your credit for the first time by opening a joint account or including a co-applicant in your loan application. This would give you access to their credit and credit history. Furthermore, both of you will be responsible to repay the loan. However, if either of you delays in repaying an instalment, it will affect your credit score. 
• Apply for a Credit-builder Loan - Several lending institutions and credit unions offer short-term loans that help in establishing credit for the first time. This loan is provided against a locked savings account and you would need to pay instalments over a set period to repay it. Once you repay the loan on time, you would be able to access the funds in the savings account.

While following the methods discussed above, it’s important to make sure that you are punctual about paying your rent and phone bills as well as maintaining a positive bank balance. 

Best Way for a Young Person to Build Credit in the UAE

As a young individual, it’s necessary to understand that building credit for the first time requires diligence and discipline. If you miss payments, it can hurt your credit rating for years in the future.

By using any of the following methods (besides the above-mentioned ones), however, you can easily build credit in the UAE as first-time user -

• Pay Monthly Bills - If you are a young individual living independently, you should know that your rent payment behaviour, utility bills, and phone bill payment patterns are reported to the credit bureau. So if you make payments on time, you can build positive credit in the UAE as a first-time user. 
• Education or Student Loan - Loans like student loans and education loans help in building credit just when you are starting your financial journey. Punctually repaying these loans can help you establish your credit in the UAE as a first-time buyer. 

How Long Does it Take to Establish Credit in the UAE?

Building good credit in the UAE takes time and effort. You need to be punctual with your payments of loans, credit cards, and utility bills. For this reason, you should formulate a proper strategy to ensure that you are building good credit in the UAE for the first time.

Common Errors to Avoid When Building Credit in the UAE as a First-time User

While following the methods discussed above for building your credit in the UAE for the first time, it’s important to avoid errors that can bring down your credit score. Make sure that you do not commit the following mistakes -

• Applying for Multiple Credit Instruments at Once - When you apply for a loan or a credit card in the UAE, the lender conducts a hard inquiry on your credit report to evaluate your creditworthiness. These hard pulls remain on your credit report for 2 years. If you make multiple applications, your credit report will show several hard pulls, which would indicate that you are not proficient in managing finances. 
• Making Late Payments or Missing Payments - Your credit score can suffer from even one delayed or missed mortgage or credit card payment. To ensure that you make all of your repayments on schedule, you can try setting up automated debits.
• Piling up Debts - Only purchase something with a credit card if you can afford to do so. It could be more difficult to pay back the due amount if you end up accruing debt that you cannot immediately repay because doing so could result in high interest rates. Financial issues could result from this, which could bring down your credit score.
• Not Paying the Credit Card Bill on Time - Although a credit card can help you start building credit, it's not the debt on the card that raises your credit score. The point to focus on is how you use the card's available credit.

Lenders can certainly view you in a positive light if you keep your balance low in conjunction with your credit limit. The amount of the limit of your credit that you are now using is known as credit utilisation.

How to Monitor Your Credit Score in the UAE?

With Policybazaar.ae, you can quickly check your aecb credit score range for free. Follow these steps for the same - 

• On policybazaar.ae, find the option for checking credit score under the 'Banking Products' tab on the navigation bar. You can also select the 'Credit Score' tab on the home screen. 
• Your registered cellphone number must be entered into a form before you can continue. Once done, click on the 'Check Credit Score' button.
• The next step is to enter your personal information and select ‘View Credit Score’. This will give you access to your credit score range.

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