Why is it important to have a good credit score?

Banks and lending institutions use it to assess eligibility when customers apply for financial products

Al Etihad Credit Bureau has been calculating credit scores for 4.5 million people and 200,000 companies since 2014. Silvia Razgova / The National

Having a good credit score is a reflection of your financial life — and gives lenders and other financial services an insight into how responsible you are when it comes to paying off loans, credit cards and even bills in a timely manner.

This helps them to assess your eligibility when you apply for a credit card, loan or mortgage.

In the UAE, a credit score is a three-digit number that ranges from 300 to 900.

A lower score suggests a higher risk to the lender, possibly leading to an application rejection or reduction of the loan amount. Customers with higher credit scores may be eligible for faster loan approvals, higher amounts and even lower interest rates.

In the UAE, a score of 300 to 619 is typically considered to be “poor”, while 620 to 679 can be interpreted as “fair”. A “good” score is generally in the range of 680 to 730 and if you have a score above 730, it is judged as “excellent”.

How is my credit score calculated?

More than 70 companies, banks and lending institutions provide data to Al Etihad Credit Bureau (AECB) on a daily basis.

The AECB has been calculating credit scores for 4.5 million people and 200,000 companies since 2014.

The factors considered to calculate your credit score are whether you pay bills on time, the number of loan and credit card applications you have submitted and your use of available credit.

How can I check my credit score?

It is quick and easy to check your credit score and report. You can log on to the AECB website to gain access to your credit score for Dh10.50. You can also receive a copy of your individual credit report for Dh84 or pay Dh157.50 for a company’s credit report.

Your credit report will list your credit score and personal details, such as your address, employer and salary.

Each credit facility will show a colour-coded history of payments over the past 24 months. If a payment was delayed by more than 90 days, you will see a red box while delays of up to 90 days after the due date show as yellow and payments made on time or before the due date are green.

Additionally, you will see the number of active loans and credit cards you have, as well as your applications and rejections.

If you are using a credit card, you will see your previous monthly balances and a percentage of credit used (for example, if you use Dh5,000 on a card with a Dh10,000 limit, you will see 50 per cent listed).

Even if you are temporarily working in the UAE or do not intend to apply for a large loan or mortgage, it is still worth checking your report as international lenders may request UAE credit scores.

What if there is a mistake on my credit report?

Another reason to check your credit report is in case of mistakes or fraudulent activity. If you spot a mistake on your report, you can contact the bank or lending institution directly and raise a complaint. Once your mistake is rectified, your credit score should automatically change.

You can also raise a dispute with the AECB and they can assist you with resolving the error. They respond to the website form within 10 working days or you can call them 800 287 328.

If you suspect that someone is using your identity to apply for credit or using your existing credit to make purchases, block your cards immediately and notify the AECB, the bank or lending institution. You can also contact the police in case of stolen identity.

If you are new to the UAE or have not applied for any credit, your report will only list your personal details.

How can I increase my credit score?

It is worthwhile to build your credit score as this offers you access to better deals on loans and credit.

You can increase your score by paying your bills on time — try automating them or setting reminders on your phone. Do not make too many applications over a short period of time. Reduce your credit use — try to limit credit card spending to 30 per cent to 50 per cent of your maximum limit.

If you don’t have a credit score, it may be worth using a credit card for small purchases and paying it in full every month.

Checking and building your credit can protect you from financial errors and fraud, provide a gauge of your financial health and entitle you to cheaper credit, both in the UAE and abroad.

Alison Soltani is the founder of LeapSavvySavers.com