The Debt Panel: 'Can freelancers apply for credit cards?'

The Dubai reader is seeking advice after their bank said they needed a fixed-deposit account to have a credit card

Nick Donaldson / Getty

I started freelancing in the UAE media industry last year after losing my full-time job of 10 years.

I recently applied for a credit card but this was rejected on the grounds that I am a freelancer.

I don’t understand the bank’s decision as I have a freelance licence, a valid UAE residence visa and also proof of my monthly income.

I have had a credit card in the past and never defaulted on any payments. However, I closed my credit card account when I was made redundant.

The bank has told me that I can only have a credit card if I open a fixed-deposit account. Is this correct?

Will I be charged a higher interest rate on the credit card because I am a freelancer?

I am also thinking of buying a property in Dubai soon. Will my mortgage application be turned down because I am a freelancer? SA, Dubai

Debt panellist 1: Steve Cronin, founder of DeadSimpleSaving.com

Each bank has a different process for assessing the risk of a card or loan applicant.

There are many factors that may be considered, including your credit score, the size and stability of your income and expenses, while the bank has access to lots of data about your financial behaviour through your current account.

The freelance visa is relatively new and freelancer incomes are usually variable from month to month.

One of the few layers of protection a UAE bank has against you disappearing is your salary from an established company. So, freelancers are going to be seen as more of a risk and the policy of some banks may be to not accept card or loan requests from them.

Have you tried talking to other banks?

Some may be happy to give you a credit card without a deposit if you move your current account to them.

Usually, interest rates are fixed per card type, rather than varied based on your financial situation.

However, you may not have access to the best cards if you are a freelancer or have credit problems.

Until your existing bank changes its policy on freelancers, it will not give you a credit card easily.

Before you make a decision on this, you should ask yourself a number of questions, such as how much the bank wants you to deposit in the fixed-deposit account and the interest rate it carries.

If you need to take out some of the money, how quickly will they return it and will there be penalties on the capital invested or only the interest earned?

You need to have a cash buffer, or emergency fund, of six months’ total expenses anyway, so the fixed-deposit account may be an acceptable place to put it if the interest rate and withdrawal policies are reasonable.

You would need to be able to get your money out within a week for it to be a proper emergency fund.

It is difficult to secure a mortgage as a freelancer. Many banks may reject your application and they are probably doing you a favour.

You should consider whether now is a good time to get a mortgage, as you will get into financial difficulty if you cannot keep up repayments.

Is your income steady and not reliant on one source only? Are you planning to stay in the UAE for at least seven to 10 years?

Maybe renting is a good idea for now, as this will give you flexibility until you get a new salaried job or your freelancing is well established across good years and bad.

Debt panellist 2: Carol Glynn, founder of Conscious Finance Coaching

Congratulations on your successful business. You are not alone in expressing frustration with accessing credit services as an entrepreneur.

The requirement to open a fixed-deposit account in order to guarantee a credit card is not isolated to freelancers.

I have seen this requirement in large multinational, multimillion-dollar companies, where a deposit equal to the credit limit is required against any card issued to an employee.

While it was conscientious to cancel your credit card when you were made redundant, it is unfortunate in hindsight as it is difficult in the UAE to obtain a credit card as an entrepreneur.

Keeping that card open would have saved you this headache now.

If you feel you need a credit card, placing a deposit with the account may be the best option in the short term until you build your credit as an entrepreneur.

Watch: Understand your finances

Entrepreneurs are also considered higher risk and the bank may impose a higher interest rate.

However, this is inconsequential if you plan to use the card responsibly and pay it off every month.

Even the lowest rates applied to credit cards are an extremely expensive form of debt and should not be used as a regular source of cash or debt.

As for obtaining a mortgage, it is important to start planning for that as soon as possible.

Have your clients pay your business income into your business bank account and every month, pay yourself a salary.

It should be a consistent amount on the same date each month.

The bank will want to see this regular income in your personal account every month.

Most banks will want evidence of this for at least six months before they will process your mortgage application.

They will also probably review your business accounts, so it is important to have them organised and ready for when you apply for a mortgage.

Debt panellist 3: Keren Bobker, financial adviser and senior partner at Holborn Assets

Each bank has its own criteria when it comes to issuing credit cards, although most will automatically request details of standard employment.

If you have a track record of regular income, a bank can choose to override their usual box-ticking process. However, you would need approval from a senior member of staff who is able to make such a decision.

It is not unusual for a bank to request that a certain balance is maintained in a current account if they are extending credit, so insisting on a savings account is much the same thing.

This is an alternative to asking for a security cheque.

While you did a responsible thing by cancelling your credit card when you were made redundant, with hindsight it would have been better simply not to use it

Keren Bobker,
financial adviser and senior partner at Holborn Assets

If your own bank will not assist you, even if you ask to speak to staff in higher positions of authority, I would suggest looking at an alternative bank that does want your business.

The rate of interest depends on the credit card and the bank’s own rates. It is always best to repay all credit cards in full each month, as interest rates are very high on all of them.

While you did a responsible thing by cancelling your credit card when you were made redundant, with hindsight it would have been better simply not to use it.

These days, it is possible for someone who is self-employed, either as a freelancer or a business owner, to obtain a mortgage but it is not easy.

UAE lenders will generally require several years of audited business accounts as proof of regular earnings.

As you have only been self-employed for a limited period, it is unlikely that you would be able to obtain a mortgage in the UAE at the moment.

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 [e-mail]