‘I have paid off several debts, but have a low credit score. Why won’t banks lend to me?’

Having a poor score may result in an initial rejection of the loan application, but talking to a senior bank employee may help

Subject: Horizontal view of the words aLOAN DENIEDaA stamped in red ink on the borroweraas signature page in a pile of mortgage loan application papers.
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I have been in the UAE for more than a decade and was very fortunate to earn a good salary. Unfortunately in 2017, I was terminated due to company restructuring. It took over a year and half to find a new job and I depleted all my savings to the point where I was not able to make full payments to my banks.

Although the new job pays me only half the salary as the previous one, I am invested in the UAE and do not see myself leaving this country. I have managed to pay off most of my debt, but still have a couple of credit cards that I have been paying monthly since August 2019.

I have been trying to obtain a loan to consolidate the remaining debt in order to bring my monthly payments to a manageable amount in line with my reduced salary. The issue is that my credit score remains at 540 even though I have repaid three vehicle loans and two credit cards and continue to make the minimum payments on the remaining cards.

My applications have been declined and this seems unfair, especially as I have honoured my debts and didn't run away. This is not being taken into account. Surely the fact that I managed to make some payments, even if below the minimum, should be taken into account? How can I convince a bank to consider lending to me? SM, Dubai

The lending processes at banks are rather automated and if someone has a poor credit score, they are likely to be declined automatically. The Al Etihad Credit Bureau was launched in 2014 and keeps a record of transactions and payment histories.

If someone misses a repayment, makes a repayment after the scheduled due date or pays a lower amount, this will be registered and will contribute to a poor score.

A late or reduced payment is still significant as the person has broken the terms of the credit agreement. Having several loans and credit cards will also reduce a credit score.

The way in which UAE credit scores are calculated is based on international practice and designed to give an indication of how likely a consumer is to default within 12 months. This allows banks to have a clear view of the level of risk before they agree to lend money.

Credit scores range from 300 to 900, with anything more than 700 considered a good score. A credit score is not fixed, so if SM is repaying the minimum amount or more and by the due date, his score will improve over time.

The way in which UAE credit scores are calculated is based on international practice and designed to give an indication of how likely a consumer is to default within 12 months

Having a poor score does not mean that a person cannot obtain a loan, but they may instead find they are rejected at the initial request as this will usually be a “box-ticking” process. The decision to lend depends on the bank or loan provider and if SM’s application is declined, he can try to speak to a senior bank employee as they may be willing to look at individual cases.

It is helpful to present full information, demonstrating that consolidation will reduce outgoings, as banks like to see that someone is trying to reduce personal risk.

The best strategy would be to approach an existing bank but be aware that given the history, they will probably to want the salary to be paid to them and may not increase the overall borrowing.

This situation also demonstrates why it is not a good idea to take on large amounts of personal debt.

I currently work for a small company and have been with them for more than six months. My pay is not very good and the hours are long. I have been offered a better job and want to accept it. If I give proper notice when resigning, am I free to start another job right away? Can my current employer stop me from working elsewhere? MV, Abu Dhabi

I understand that MV is on an unlimited employment contract. For anyone on an unlimited contract, there should not be a ban if they leave after completing six months of work and have given proper written notice of at least 30 days, or as stated in their official contract of employment.

There is no reason why MV should be prevented from working for another company. It should also be noted that the sections in the UAE Labour Law about working for a competitor under a non-competition agreement would not be enforceable for this type of junior position.

Keren Bobker is an independent financial adviser and senior partner with Holborn Assets in Dubai, with more than 25 years’ experience. Contact her at keren@holbornassets.com. Follow her on Twitter at @FinancialUAE

The advice provided in our columns does not constitute legal advice and is provided for information only