Most people know what a credit score is - it’s a three-digit score assigned to individuals based on their financial health. But what they don’t realise is that your credit score plays an important role in deciding your eligibility for a mortgage loan from the bank.
A good credit score means you’ll get more offers to choose from, better interest rates, and a higher probability of getting a mortgage approved. A bad score? That could mean you’ll struggle to get mortgage offers based on the perceived risk of lending to you - and may not get approved for a loan at all!
So if you’re thinking about buying a home, either now or in the next few years, it’s important to start thinking about your credit score and your financial health. Here’s a quick guide on everything you need to know about it and some quick tips on what you can do to improve it.
What is a credit score?
In simple terms, a credit score is a number that predicts how likely an individual is to make repayments on a credit card or loan. The number ranges from 300 to 900. The higher the score, the less risky you are to lend. The lower the score, the higher the risk.
Credit scores are provided by the Al Etihad Credit Bureau (AECB), which collects the financial information of an individual from various sources such as banks, credit card providers, lenders, etc. and generates a report by analysing the details. This report is then used by financial institutions to determine whether an applicant is capable of repaying the loan.
The report contains a record of your bank accounts, the number of credit cards, credit utilisation, due dates, whether there have been any missed payments, paid installments, due dates, along with any other relevant financial information, from both the past and present.
How can I improve my credit score?
If you have a low credit score, you must try to improve it to increase your chances of getting a mortgage loan. Here are some ways to help maintain or improve your credit score:
Pay your bills on time. It’s a common but important way to keep a good credit score. Even a one-day late payment will be recorded and may negatively affect your application for credit or a loan. Make sure to pay your bills on time and in full to prove you’re a reliable borrower.
Manage your debt. Try to clear debts with high interest rates as soon as possible, as costs will mount up. Do you really need that new car, or can you make the most of the one you've already got? Be savvy with what you do and don't need.
Credit utilisation. Credit utilisation is the percentage of the credit limit you use. For example, if you’ve spent AED 10,000 from an AED 20,000 limit credit card, your credit utilisation is 50%. Try to keep your utilisation within 50%, as lower percentages are seen positively and will increase your score as a result.
Credit applications. Yes, this matters. One or two recent inquiries won’t make too much difference, but several in a short space of time can lower your credit score.
How can I check my credit score?
To check your credit score in the UAE, you’ll need to contact the AECB Office in Dubai or Abu Dhabi. You'll need to provide your Emirates ID and other identification documents, and will need to fill in a request form. Alternatively, you can visit the AECB website and fill in their online form or download their app.
A credit score is one of the most important factors when it comes to determining whether or not you are a reliable borrower who can repay your loan. No bank in the UAE processes a loan without studying the credit report of the applicant.
So now you know how important it is, follow the steps outlined above to either improve or maintain a good credit score to give you the best chance of getting your mortgage loan approved when the time comes.