The Debt Panel: 'An old write-off status is stopping me from taking on more credit'

The Dubai logistics manager cleared his debts five years ago but now wants to sign up for a credit card

Illustration by Mathew Kurian 

A few years ago I was struggling with my finances as my family was living in Dubai and my wife did not have a regular job. It meant I ran up some credit card debt to pay the rent and survive. We could not make ends meet so we decided it was best for my wife and four children to return to the Philippines.

I then landed a high-paying job and was able to clear my debts in 2014 by negotiating a settlement with my then lender. I am now totally debt-free. As I am now financially stable and solvent, I want to apply for a credit card to earn points on my purchases. When I applied to some banks for a credit card, I discovered a write-off status was recorded on my credit report with Al Etihad Credit Bureau (AECB) in 2014; this was due to my settlement with the lender at the time. As far as I understand, it means I cannot get approval from the banks for a credit card, even with the bank to which my salary is transferred. How can I improve or remove this write-off status? It was added five years ago, does that mean it will stop being an issue for me soon? The banks say there is no way to resolve this. Is that correct?

I have not checked my credit report yet, but I have checked my score and that is what I am looking to improve.

I earn Dh10,800 as a logistics manager in Dubai. I rent a bedspace in a shared apartment to help me save more money. My expenses equal my monthly salary of Dh10,800 and include Dh750 for rent, Dh600 for petrol, Dh300 for parking, Dh50 for my phone, Dh1,100 for food and Dh8,000 in remittances. How can I resolve my issue so that I can sign up for a credit card? DQ, Dubai

Debt panellist 1: Shaker Zainal, head of retail banking at CBI

Unfortunately, a settlement agreed with a UAE bank which involves any element of write-off, does result in a “write-off” status being recorded on your credit report. This status remains indefinitely unless the write-off amount is cleared in which case the status should change to “0” write-off. You can always approach the AECB authorities directly who should guide you on the best way forward.

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I would caution against taking on any credit facility which you might later run into difficulty with.

In the meantime, given your current outgoings are equal to your income, I would caution against taking on any credit facility which you might later run into difficulty with. However, if you feel confident in your ability to maintain credit card payments without running up a high interest bearing balance, there may be some banks willing to issue you a card since the previous write-off happened in 2014 and you are now debt-free with a good income.

The credit card may come with a relatively low limit at first, for example only one times your salary, until you can build your credit history up again. Alternatively, consider applying for a "secured" credit card. This involves placing funds in an account with the card-issuing bank, such as a Fixed Deposit. The deposit would be for a fixed tenure, such as 12 or 24 months and the bank would normally agree to issue a credit card with a limit of 90 per cent of the funds on deposit as security.

The advantage of this is that you would earn interest on your fixed deposit, which could help offset any interest you incur on your credit card, as well as credit card rewards on your daily transactions. Over time, as you maintain your credit card payments, your credit score should improve and the issuing bank may be willing to increase the card limit.

Statement from the Al Etihad Credit Bureau:  "The write-off status of a credit facility remains in the report for five years from the closure date of the facility. The banks report this status at the time of loan closure after failing to collect the remaining outstanding amounts and after exhausting all the efforts during the collection activities."

Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com

A write-off or charge-off shows up on your credit report when a creditor writes off all or a portion of your outstanding debt as a loss. Not only can a write-off happen when you default on a loan or credit card commitment, but also when you reach a reduced payment settlement with the creditor — as  in your case.

A write-off is taken very seriously by prospective lenders. Unlike late payments, that a lender may still be willing to look past, a write-off clearly indicates that your previous creditor was unable to fully recover the amount you owed to them. This makes you a gamble for future creditors. With a high-risk tag attached to your credit report, banks and credit card providers may outright deny you a new loan or credit card.

There's a silver lining though. Such write-offs remain on your credit report for five years from the date the debt was charged off.

However, if you're in a hurry to get a credit card and want the write-off mention to be removed as soon as possible, there is another way out. First, find out exactly how much of your original debt was written off by your previous credit card provider. Next, get in touch with a senior official at this credit card company and express your interest in paying off the amount due to them. Ideally, deal with someone with enough authority to remove the write-off in return for full payment of the debt. Last, make sure to get a clearance letter and a written agreement from the card provider regarding the write-off status removal.

Before you go down this route, make sure you have enough savings to repay the creditor. Although this negotiation may not work with every lender, it's definitely worth a try.

Debt panellist 3: Rasheda Khatun Khan, founder of Design Your Life

With credit cards, it is very easy to get yourself into debt. Unless you pay off the full balance each month, it will be your costliest line of credit. The average interest rate on a credit card in the UAE is 37.5 per cent per annum. Yes, it really is that high. It only takes one month of not paying off the card in full and you could find yourself tangled up in debt again. I highly recommend staying away from credit cards and look for an account where using a debit card offers similar rewards.

While credit cards offer great rewards and a convenient way to make purchases, debit cards do this too. Many banks also offer reward schemes with debit cards. Explore this option first.

Focus more on building your future wealth by setting up a saving strategy and ensuring you have an emergency cash fund. This is far more rewarding with greater gains than the risk of getting into debt again.

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

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