In case you haven’t heard, the UAE’s Al Etihad Credit Bureau this week launched its credit scoring system, designed to help determine how risky it is likely to be to lend to certain borrowers.
Such a system is pretty common in more mature markets. Basically, it means that data is collected about your borrowing habits, and your repayment history, and given to Al Etihad Credit Bureau. The bureau then uses that data to give you a credit score between 300 and 900. The higher your score, the less risky you are to lend to.
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That’s the news, but what does it mean for you? Well, the obvious thing is that, if you’re no good at keeping up with repayments, your lender will tell the bureau, and that fact will be reflected in your credit score. So once you apply for credit again, the bank may reject you on the grounds that you’re a risky person to lend to.
But by the same token, it means that, if you’re good at repaying debts, that’ll also be reflected in your credit score. This means that, in future, banks will be more likely to lend to you, because you’ll be a less risky borrower.
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There’s more to it than that, though. This move could fundamentally shake up the way that credit cards and loans are given out in the UAE. After all, currently, interest rates are, by and large, the same for every borrower – whether they’re risky prospects or not. So whether you’re always on top of your payments, or you’re constantly late-paying, you’re likely to see an interest rate of around 40% p.a. if you sign up for a credit card.
That could change thanks to credit scoring. Going forward, banks could start to reward those with good credit scores with incentives such as lower interest rates or better perks. After all, banks are looking for customers that are better at paying their bills – they tend to generate more business for them. So once credit scoring is the norm, banks will view high-scoring customers as valuable targets.
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And, going forward, Al Etihad Credit Bureau reckons that the benefits of maintaining a high credit score may go even further than getting good interest rates on financial products. It could be that, further down the line, landlords will give better rates to tenants with good credit reports, and insurers may even offer better deals, too.
While none of these factors are in play yet, it’s still important to maintain a good credit history. Starting today, any financial slip-up will be noted in your credit report, and it’ll affect your credit score. To ensure you’re best placed for getting credit in the future, then, it’s best to keep on top of your finances today.
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