In 2016, I was careless with my credit card and because of poor credit awareness, only paid the minimum balance due each month.
This spiralled into a sizeable amount – approximately Dh35,000. At the same time, I faced an employer-levied travel ban, which forced me to stay out of the UAE for two years.
My wife, who was living and working in the UAE during this time, settled the dues on my credit card with our savings from our home country and the bank issued her a clearance letter after the account and card were closed.
I have since returned to the UAE and am now employed. I have a salary account with a different bank, but no longer have a credit card. However, I am wondering if I am eligible to get a car loan or personal loan considering my poor credit history.
How can I check with the Al Etihad Credit Bureau (AECB) about my credit history? Am I eligible to apply for a credit card or personal loan since four years have now passed and the debt has been cleared? AN, Dubai
Debt panellist 1: R Sivaram, executive vice president and head of retail banking products at Emirates NBD
Despite having to deal with a large debt and being out of the country, it is commendable that you have been able to pay off the outstanding amount fully. Debt can balloon if you are not careful and it is always prudent to avail credit wisely and ensure that it is suited to your repayment capabilities.
You can obtain a copy of your credit report by visiting the AECB's website and by paying a nominal charge.
Banks provide approvals for new loans in line with their credit policies and product programmes, and use a combination of the credit score, internal assessments and the customer’s employment profile to evaluate the application.
Given that you were able to settle your earlier outstanding debt fully and sufficient time has elapsed since then, and you are employed in a stable job now, it is very likely that you should be able to apply successfully for a new card or loan.
Debt panellist 2: Carol Glynn, founder of Conscious Finance Coaching
Well done on repaying your credit card debt in total. It was an expensive lesson to learn, but no doubt you are now aware of the consequences of not paying off credit card balances in full every month – high interest rates quickly drive up the balance due.
The first thing to do is check your current credit rating. You can either log on to the AECB website or use their app. It costs Dh105 for a credit report and score.
The score is a three-digit number between 300 and 900, which indicates how likely you are to make a debt payment on time in the future based on past payment behaviours. The lower the score, the higher the predicted risk.
It seems from the information provided, you didn't miss minimum payments and it spiralled as you didn't pay the full balance each month. Paying the full amount due protects your score, but paying the minimum will hopefully help prevent it from going as low as 300.
Each bank will have its own risk polices. Some may not lend to an individual with a lower credit score, while others may lend but attach less favourable terms such as charging higher interest rates.
It is possible to improve your credit score and this is a great opportunity to start. Read and understand the information on the report. The score is calculated using data from various sources, not just banks. Paying your electricity, phone and internet bills on time and in full will help improve your score over time.
You haven't stated the purpose of the loan or credit card. Is it a necessity right now? If not, I would suggest avoiding any unnecessary debt.
Credit cards are often a necessity for certain purchases, so I would recommend applying to your salaried bank for one with a very low credit limit. Pay the total balance in full each month and, over time, this will positively impact your credit rating.
Debt panellist 3: Steve Cronin, founder of DeadSimpleSaving.com
You have been given a valuable lesson, even if it was painful – only paying off the minimum amount every month will keep your bank happy, but hugely increase your debt. This makes you vulnerable to any unexpected problems.
If you settled your card dues without missing any payments, then you won’t have any black marks on your credit score. If you did miss payments, and especially if you were more than 90 days overdue, then this will have affected your score and will stay on your credit record for five years.
You can access your credit report and credit score by downloading the AECB app on your phone. Getting both will cost Dh105. It is well worth getting the report because it will show you what is driving your score.
Sometimes, mistakes are made, so you should check the report before you need a card or loan. If there is a mistake on the report, you can contact the AECB on 800 287 328 or visit their customer experience centre in Dubai.
Your score will be between 900 (excellent) and 300 (terrible). It may be your prior issues are not impacting your current score at all, in which case the bank will focus more on your salary, employer and various other criteria.
Each bank has a slightly different approach. If your score is low, you will not have access to the best products and your interest rate will be higher. You may well find a bank willing to lend to you though, if you can accept the higher rate.
What concerns me more is that you have just got your life in Dubai back on track and you are already looking for a personal loan. Haven’t you had enough debt problems? Is it possible to have a nice life without loading up on debt? It requires a bit of discipline and frugality, but you will be much more resilient and sleep well at night.
It’s best not to take on debt until you have built up a cash buffer of at least six months' expenses. If you can’t do this fairly rapidly, then it is an indication you are living beyond your means.
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 firstname.lastname@example.org