You recently got the shock of your life. You were approached by a bank for a personal loan, and you thought, sure, why not, my wardrobe needs an upgrade, let’s do this. Wait. That’s not the shocking part. After all, this is an everyday occurrence in the UAE. We are constantly being deluged by offers for credit cards, personal loans and other kinds of credit facilities, many of which we say yes to without really thinking through what it might mean for us.
No, the shocking thing was what happened next. Once your loan application started, you assumed the money would hit your account in the next couple of days. After all, that is the norm, right? You were already mentally spending the money. However, this time was different. You got a polite call back saying “Sorry, we are unable to grant your loan because of issues in your Credit History.”
Upon the advice of your bank, you ran down to the offices of Al Etihad Credit Bureau and got your Credit Report. As you leafed through it, you saw more than a smattering of red, and in more than one place. Clutching the report, you ran down the stairs to the nearest coffee shop, ordered a latte and sat down to review it in detail.
The first red mark was against a late payment for a credit card (But I was only a couple of days late!). The second was against a cheque that was returned due to insufficient funds (But…). And the list went on. Small things, slight missteps, leading to a rejection of a loan. More than that, because let’s face it, you did not really need the loan, it is a blow to your self-esteem. After all, you make decent money, and you have always prided yourself on your ability to access credit if there was ever a need.
Well, that has changed, and not for the better. The question is – what can you do to fix the situation?
Here are a few things you can start doing right away that should get things moving in the right direction quickly:
- Don’t miss or delay payments on your credit obligations. Not by a day. Not by an hour. I can’t stress how important this is, and the impact it has on your credit score. If you are going to be out of the country, pay a week earlier than the deadline or make arrangements so that you don’t miss the date.
- Review your total debt obligations and “Purge Your Debt” – get rid of any credit facilities that you are not likely to use in the next 6 months or so. Every unused facility contributes to your Debt Burden Ratio (DBR), and you need to understand that. According to Central Bank regulations, anyone approaching a DBR of 50% is no longer eligible for more debt. So, if your total debt obligations are greater than 50% of your income, you will need to reduce some debt before you can take on any more. More and more banks are using this simple measure, so calculate your DBR and manage it, because if you don’t, someone will manage it for you.
- Get rid of unused credit cards. We all know people with multiple credit cards who are in the process of reaching the maximum limits on those cards. Any unused cards should be gotten rid of immediately, through a proper process. Simply cutting up a card won’t do. You need to return it formally at the bank, and after settling any dues, ensure that you get a bank clearance letter that states that you have no dues outstanding. And sometimes, even that is not enough, because the banks may “forget” to send your updated files to Al Etihad Credit Bureau, so they may continue to reflect on your Credit Report.
- Use your Credit Report from AECB proactively to manage your credit situation: I recommend that you regularly check your credit report, especially if you are trying to correct your credit history moving forward. Here is a link to how you can get your Credit Report, if you have not already done so. https://www.aecb.gov.ae/en-us/services/creditreport.aspx. What’s done is done, but it is not water under the bridge – at least not as far as your credit history is concerned. Actions that reflect poorly on your history will be visible for up to three years on your Credit Report, and while it’s importance declines over time, every action (positive and negative) has consequences. While this might sound simplistic, don’t bounce cheques, delay payments, miss payments… not only because of what the recipient faces, but purely from a selfish standpoint. Don’t do it to yourself.
- Your credit score and history is in YOUR hands: Take ownership. Understand that there is no one to blame for the situation you are in but yourself. Blaming banks for giving you loans, blaming the rising cost of living for maxing out your credit cards, blaming cultural requirements for taking out a personal loan that you cannot repay – all of this is a waste of time. Your past behaviour has determined your credit history but it’s not too late to change the way you manage your credit. Build a Credit Report that you can be proud of, and receive a Score that truly reflects who you are, and where you are, in life.