The credit score is a report prepared by a financial institution according to your financial past and is popularly known as a credit report. The idea behind a credit score is to know that how worthy you are in the eyes of banks and other financial institutions. When you apply for a loan, according to your credit report, the bank will know the risk percentage of lending that load. According to this percentage, the bank will decide, whether to lend the particular loan or not.
The concept of credit score was introduced in 2014 in UAE. However, now this concept is standard throughout the country. Due to this, it has now become a priority of the people of UAE, to manage and be on top when it comes to finances.
Now the question, who runs this credit reporting in UAE? Al Etihad Credit Bureau (AECB) credit scores people banking in UAE. It was established in 2010 by the federal government of the UAE. Its works are to collect payments and credits related information regularly from both financial and non-financial across UAE. After the analysis of data, Al Etihad Credit Bureau comes up with a credit score that clearly demarcates that how eligible is the person for a loan.
The information included in the report are:
- Identification number which can be passport number or Emirates ID.
- Total outstanding balanced or debt of the person in UAE
- The total amount of late payments and missed payments.
- A brief account of ongoing loans and cleared loans.
- Payment history of credit card
- List of applications for credit cards.
- And finally the credit score.
AECB gets the information through the financial institutions that you are linked with. Any new information regarding you like a new credit card or a new loan is immediately sent to AECB for inclusion in the report.
Some of the reasons for the drop in credit score
Common reasons:
- Late or missed payment – The payment related histories impact credit score the most. Any payment-related to credit card or loan, if it gets late by more than 30 days then it will lead to a drop in credit score. This inquiry will stay in your credit file for seven years which will surely be a big damage.
- Heading towards an expensive purchase – It can come as a shock but it is true. If you make a heavy payment using your credit card at once, your credit score will see a decline.
- The impact of unpaid accounts – Paying the dues of all credit and non-credit accounts becomes a priority. If you fail to do so, this unpaid account will be reflected in your generated credit report and hence your credit score will drop.
- Giving an application for a new credit card – Issuing a new credit card will add an inquiry to your list. This will lead to a decrease in the credit score. However, this inquiry will stay on the list for only two years. Once this is removed, one can expect an increase in the credit score.
- Low credit limit – Lowering your credit will lead to more utilization of the credits. This in term will result in a lowering of credit score.
- Cancellation of a credit card – The company which is issuing the credit can, has full authority to cancel the credit card. This will harm your credit score.
- Due to inaccuracy in the information on your credit report – It is very essential to keep a check on your credit score regularly. This will help you identify any inaccuracy on time and can apply for the correction there and then.
Uncommon reasons:
- Your credit card issuer lowers your card limit without warning – This can be one of the possible reasons for the decrease in your credit score.
- Falling in prey of identity theft – This is a harsh reality, that you can be victimized in some fraud and this will lead to a decrease in your credit score.
- Closing a credit card – When you close a credit card (even if it is the oldest or the only one) this can be a result in lowering your credit score.
- Removing the old positive account – The credit bureaus tend to delete the very old account without much information. If this account is a positive one, there are chances that it results in a drop in the credit score.
Some ways to improve or maintain your credit score:
- Pay bills of loans and credit cards on time to avoid late charges.
- Avoid debts or try to minimize them as far as possible.
- Stay away from applying for unnecessary credit cards.
- Be an aware citizen and manage your expenditure. Do not do impulse buying from credit cards.
- Keep a check on your credit score regularly to stay away from fraud and inaccurate information.
Need for a good credit score
When a person applies for a loan or applies for the issue of a credit card, the financial or non-financial institutions review his credit history and credit scores. The bank will decide whether to approve your loan or not according to your credit score. Every bank decides it according to their given policies. On average, a bank will not provide you with a loan on a credit score of under 400. Many reputed institutions keep the limit of under 500 scores also.
How to know the credit score, you can download your credit report and credit score from AECB’s official website. Once you are aware of your credit score, you will know your exact position. You will know that you have to relax or work on improving it.
Over time, the value credit score will increase. It is important to be aware of the entire system and know how it works. As a responsible citizen knowing the financial policies becomes mandatory. So now it’s your turn to know the credit score if you plan to take up a loan or apply for a credit card.
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