Why Are My Credit Scores Different?
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You cannot have more than one credit score in the UAE. This is because there is only one Credit Bureau that regulates and analyses your creditworthiness in the UAE - the Al Etihad Credit Bureau or AECB. To understand how credit score works in the UAE, read the following sections of the write-up.
How Does Credit Bureau Work in the UAE?
The primary function of al etihad credit bureau is to gather, store, and professionally disclose credit-related information about both individuals and companies. In practical terms, when a person decides to apply for a loan from a reputable bank, there is a crucial decision to be made.
Typically, the loan policy's terms and conditions specify certain criteria that must be met. To ensure that these criteria are satisfied and there is no deception on the part of the applicant, the bank conducts a credit history check on the individual.
This is where the credit bureau comes into play. The applicant's profile is sent to the credit bureau, which is responsible for carrying out the necessary credit assessment. The credit bureau maintains a classified record of credit information about consumers, drawing from its own aggregated data as well as any publicly available information.
With that said, it's important to note that the final decision on whether to approve the loan ultimately rests with the bank.
How Does Credit Score Work in the UAE?
Your credit score is determined based on the following factors -
- Payment History - Your payment history is unquestionably the most critical factor when determining your aecb credit score. It serves as an objective record of all your past payments — both on time and missed — as well as how recently these payments were made or missed. Naturally, a higher proportion of on-time payments leads to an improved score. If payments are significantly delayed (extending beyond 30 days), the lender may report it. This, as you can expect, negatively impacts your UAE credit score.
- Length of Credit History - A favourable score reflects a history of consistently making timely payments. Scoring models consider the average age of your credit accounts when assessing your credit history.
- Types of Accounts - Diversifying your accounts, whether they are retail or credit cards, can enhance your AECB credit score.
- Recent Credit Activity - If you've recently opened multiple accounts or applied for new ones, it may raise concerns and be interpreted as a potential sign of financial instability, which could lower your AECB credit score.
- Debt Accumulation - The second most crucial factor is the total amount of debt accumulated through loans on your credit card. This calculation is based on the entire outstanding balance and the ratio of debt to available credit on the card account.
AECB credit scores serve as a direct reflection of an individual's creditworthiness. For this reason, these scores are of the utmost importance to financial institutions such as banks and other organisations that rely on trust in their transactions.
A credit score in the UAE holds significance in various ways for different entities -
- Banks use it to assess whether to extend loans or credit cards to individuals or businesses.
- The score plays a role in determining the loan amounts or credit card limits offered.
- Insurance companies consider it when approving applications for insurance plans, as a good AECB credit score indicates a commitment to financial responsibility.
- Home rental agencies and similar organisations may use it in their tenant screening processes.
- When individuals apply for unsecured loans, lenders often refer to their credit scores.
- Telecom service providers may take it into account when selling postpaid connections.
Credit Score Range in the UAE
Typically, credit scores with 1 and 2-star ratings suggest that they fall below the average and are insufficient for applying for new loans and credit cards. Conversely, a 3-star rating signifies an average credit score, while 4 and 5 stars signify outstanding credit scores.
Check out the following table for a general overview of credit score ranges -
| Credit Score Range | Rating |
|---|---|
| 721 to 900 | 5 |
| 681 to 720 | 4 |
| 596 to 680 | 3 |
| 401 to 595 | 2 |
| 300 to 400 | 1 |
How to Improve Your Credit Score in the UAE?
Here is how you can improve your credit score in the UAE -
- Timely Payments - Timeliness in payments is appreciated by banks (and let's face it, by everyone else too!). If you consistently make late or incomplete payments, your credit score will inevitably plummet. Fortunately, avoiding this predicament is quite straightforward. Just make sure that you make on-time payments for your credit card, rent, and utility bills. This way, banks can use your reliability as a strong indicator of your capacity to repay borrowed funds promptly.
- Responsible Spending - It's crucial to refrain from excessive spending on your credit cards, as this signals risk to potential lenders. Sure, your bank may have granted you a generous credit limit, but is it truly necessary to max it out? As credit utilisation plays a pivotal role in determining credit scores, it's advisable to exercise prudence when utilising your available credit.
- Reducing Outstanding Balances - Are you stuck in the habit of only paying a fraction of your credit card bills each month? This can negatively impact your credit score! By consistently chipping away at your outstanding balances, you demonstrate to lenders that you possess the ability to repay your debts and take your financial obligations seriously. This practice will significantly contribute to the enhancement of your credit score.
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| Credit Score for different types of Loan | |||
|---|---|---|---|
| Credit Score for Personal Loan | Credit Score for House Loan | Credit Score for Car Loan | Credit Score for Student Loan |
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