Will the new Credit Bureau affect the common man in the UAE?
The answer to this question is a resounding yes. Al Etihad Credit Bureau (AECB), a federal government company specialised in providing UAE-based credit reports and other financial information, has announced it will be operational by the end of this month. The bureau is still collecting data from UAE banks before it consolidates information and makes credit reports available to banks and individuals. Here is guide to how the Credit Bureau will affect you:
What does the Credit Bureau do?
Simply put, it collects individual customer histories from all UAE banks and compiles it to form a credit report. A credit report essentially reveals whether you are a good borrower or a bad borrower. It also shows how much you have already borrowed and how many credit cards you have.
Why is it relevant?
The objective is to enhance the UAE’s financial and regulatory infrastructure. Both consumers and companies will be able to access the credit reports that will include a credit summary and payment behaviour. A lender determines if you’re a good credit risk by looking at your credit report and analysing your credit score. Having a credit reference agency in the UAE can help decrease bad loans or default rates for banks and help banks identify customers who are overleveraged or have been extended credit beyond their limit and avoid any further lending to them. Banks can also identify customers with a good payment history and reward them by offering more credit and possibly lower interest rates on loans. In a sense the bureau will force customers to borrow within limits and maintain a good repayment history so that they will have continuous access to banking services. It’s a win-win situation for banks and customers, assisting them both in making responsible lending or borrowing decisions.
What does it mean for an individual?
A credit report is important for three reasons:
1. Banks will have access to an individual’s payment history and current loans status. This will ensure that customers are adequately funded and do no not get stuck into a debt trap. Customers applying for loans sometimes claim they have no other running loans as these might be paid out of an account where their salary is not transferred. Other customers sometimes apply for loans with different banks at the same time, racking up much more than the 50 per cent leverage allowed by the Central Bank. Individuals applying for multiple loans at the same time will now get caught, as every application will be checked by the Credit Bureau.
2. The reports will help banks approve or reject requests for credit. Those with a poor repayment history could be declined a loan, even if they have the capacity to pay.
3. Banks will use this report to decide the rate of interest for a loan. By identifying customers with a good credit report, they can offer a lower interest loan whereas customers with poor credit scores will be offered the same loan at higher interest rates to cover for a higher risk.
How can I improve my credit report?
1. Pay on time: An individual can improve their credit rating by ensuring loan and credit card payments are made on time.
2. Avoid and resolve any disputes immediately: While it’s OK to question a bank about fees, charges or even late payments, aim to revolve these as quickly as possible. If you know you can’t pay an upcoming loan instalment or credit card bill, contact your bank and apply for a deferment. If a deferment is not possible, agree a reasonable date for payment so that it is not noted as a missed payment.
3 Track your debts: Close any unused credit cards or any other loan facility such as an overdraft. Even if a credit card is not used, it accounts as debt on a customer’s portfolio because it is available for immediate use and, therefore, hikes the debt/income ratio artificially.
In essence the Credit Bureau will help individuals as well as the economy as a whole. While it may not cover all banks, products and financial Institutions to begin with, eventually it will cover the whole gamut of financial services and can also extend its remit to track payment history on utility services such as electricity, water and phone bills. While the Credit Bureau is still at a development stage, UAE residents should grab this opportunity to get their records in order.
Preeti Bhambri is the managing director of MoneyCamel.com, a personal finance website that allows users to compare, choose and apply for banking and insurance products