The Debt Panel: 'How can I repair my credit score after discovering I owe $1?'

This Dubai resident was unaware that he owed money on an overdraft facility when he closed the bank account in 2019

Nick Donaldson / Getty

I opened a current account with a local bank in September 2015. However, I closed the account in 2019 and received the full balance in cash.

In April 2019, I emailed the bank to double check if the account had been closed and they confirmed that it had been in their reply.

For the past couple of years, I have been trying to apply for a credit card but the application has been rejected repeatedly. I have since discovered that the bank claims that I defaulted on the closed account’s overdraft facility by Dh4 ($1.08).

I have no idea how it came to be that I owe the bank Dh4. The bank has also never informed me of this and I only discovered it when I applied for a credit report from Al Etihad Credit Bureau.

I do not understand why the bank did not deduct the Dh4 from the balance in the account when I closed it. The bank has also never contacted me to claim back the money.

How can I pay back the Dh4 and remove myself from the defaulter list? Moreover, will I be able to restore my credit score over such a ridiculously small amount of money? MR, Dubai

Debt panellist 1: Sameh Awadallah, acting global head of retail banking at Abu Dhabi Islamic Bank

The first step that you should take is to contact the bank and discuss the matter. Let them know your situation and highlight your intent to apply for a credit card that is being hindered because of an overdraft amount of Dh4 and that you are willing to settle.

Please note that an overdraft charges no interest at all. The funds in a current account are always made available to the account holder whenever needed, and to compensate for the extra liquidity that the bank provides, there is no interest charged on current accounts as well.

In your case, the overdraft may have occurred due to not enough money in your account to cover a transaction or withdrawal, but the bank allowed the transaction and charged the fees accordingly.

Try to pay off what you owe as soon as possible. Once you have achieved this, the default will be marked as “satisfied” on your credit report, which will help in your future credit applications.

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As a rule of thumb, one should always request a clearance letter once an application to close an account or liability has been processed to ensure there is no further accrual of charges
Jaya Ratnani, managing partner at Freed Financial Services

Banks offer overdrafts as short-term finance to customers. While the tenure of a personal loan is for a longer duration — up to five to seven years — the tenure of an overdraft facility is for a shorter period and is usually cleared within a year.

Eventually, you will have to pay off the overdraft regardless of the amount. The way banks try to encourage this is to reduce the maximum zero per cent overdraft each year — the idea being that by the time the zero per cent ends, you'll have paid it off.

Failure to pay an overdraft fee could lead to a number of negative consequences.

The bank could close your account or take collection or other legal action against you depending on the amount defaulted. It could also report your failure to pay, which may make it difficult to avail a bank’s services in the future and eventually affect your credit profile.

Debt panellist 2: Jaya Ratnani, managing partner at Freed Financial Services

When you apply for any financial credit, one of the most important documents for approval is a consumer's Al Etihad Credit Bureau report.

This report states a person's financial obligations and helps banks to assess your credit worthiness. Based on your repayment history and defaults, your overall credit score is determined. Even a small overdue amount of Dh4 can have a negative effect on your AECB rating.

As a rule of thumb, you should always request a clearance letter once an application to close an account or liability has been processed to ensure there is no further accrual of charges. As you did not receive a letter, the Dh4 is reflecting as a past due in your report.

In your case, the following steps are recommended:

1. Approach the bank and request for a waiver of all the charges

2. Based on the email confirmation that you received from the bank, it should consider this waiver

3. Request a no-liability letter from the bank

4. Allow 30 days for the bank to report the closure of the account to AECB

5. Review your personal AECB credit score after 30 to 45 days to ensure that the default has been removed and your new score is correct

Meanwhile, if you are applying for a credit card facility, you can provide the justification to the bank about these charges and the credit evaluation team can consider your case for approval.

Alternatively, you can wait for the AECB report to reflect the closure of the account and reapply for the credit card.

Debt panellist 3: Alison Soltani, founder of Leap Savvy Savers

It is frustrating that you have been rejected for a credit card and had your credit score affected by a Dh4 charge that you did not know about.

It may have been a timing issue — a vendor did not take a payment before the bank finished the process of closing the account or, for such a small amount, it may be a system error.

In future, it is worth not charging anything to a debit card attached to an account you wish to close for several days before initiating the closing process to avoid having outstanding charges on the account after it is closed.

The first step is to try to resolve the dispute with the bank directly. If the situation remains unresolved after your first contact, register a formal complaint through the bank’s complaints channels, submitting the email you received and any closing balance statements you may still have as supporting documents.

If the bank is unco-operative, does not settle the complaint within 30 days or in the case that it has added interest to the Dh4 charge, you can raise a complaint with the Central Bank of the UAE through its website.

You will need supporting documents, such as a complaint reference number from your bank and possibly the email confirming the closure of the account.

The central bank's Consumer Protection Department will contact you once you have logged the complaint to let you know the steps it will take.

When you have resolved the case with the bank and cleared the mistake, contact AECB to raise a dispute. There is a data correction request form that you can fill out on their website, or you can call them on 800 287 328 or visit one of their offices in Abu Dhabi and Dubai.

When AECB receives information from the bank regarding the error, it will update your credit report, which will automatically change your credit score.

Be aware that the process may be lengthy and your repeated credit card applications may be affecting your credit report.

However, there are strategies to improve your credit score while you are resolving the Dh4 dispute.

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Failure to pay an overdraft fee could lead to a number of negative consequences.
Sameh Awadallah, acting global head of retail banking at Abu Dhabi Islamic Bank

Ensure all bills, fees and loan payments are made on time and limit the number of accounts, cards and loan applications you make in a short time frame.

Additionally, do not utilise the maximum amount of any existing credit you have. For example, if you have a credit card with a Dh10,000 limit, it will be an advantage if you use Dh3,000 to Dh4,000 per month and pay it off in full.

You could also request to become an authorised user on a fiscally responsible partner’s card, which will positively affect your credit report.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae

Updated: March 02, 2022, 5:34 AM
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