Facts

How to improve your credit score

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A credit score plays a vital role in your financial life – it’s what allows banks to determine how credit-worthy you are. And with Al Etihad Credit Bureau (AECB) having recently introduced the concept to the UAE, there’s now no excuse to work towards keeping a good score.

Like all good things in life, you must wait to build up a credit score. It determines how you will borrow money in the future. If you have poor credit then you will find trying to borrow difficult. The Credit Bureau collects data on your financial history – so there is no more hiding from your late payments. But the AECB is good news for UAE residents who keep on top of their finances, as borrowers will eventually be able to pay lower interest rates on loans based on their strong credit scores.

RELATED: Surge in UAE credit card applications for Q1 2017

The lower the credit score you have, the more of a risk you are to banks. In the UAE, the bureau gives you a score between 300 and 900. And a poor credit report can cost you financially in the long run.

It’s easy to fall into bad credit – late payments on bills and multiple credit cards will play a factor in how easy it is to obtain loans for cars, mortgages or how much interest you end up paying back. Credit score can also be checked when applying to jobs, so a good credit history could help you land that dream job.

So, how are you supposed to gain good credit, and then more importantly, keep it?

To help you understand your own credit rating, you should get a copy of your credit report. The report will show what current and historical credit you have used, your payment history over the last two years, any payments outstanding or overdue, plus records of any missed or defaulted payments. A basic credit report from AECB will only cost AED 70. Seeing where you are going wrong – or right – can help you to understand your spending. With that in mind, if you spot any errors on your report then it’s best to report it immediately and have it taken care of – you could mistakenly have bad credit and not even know.

One way to make sure you get and keep a good credit score is common sense. Pay your loans on time, every time. If you find this is one of your downfalls then maybe set up automatic payments or set up electronic reminders. That way you have no excuse to miss a payment.

If you have ever been tempted to pay the minimum on your credit card, you will know it can bring temporary relief because at least you have met your monthly financial obligation. But if you do this continuously then you could end up doing more damage than good. Paying the minimum amount each month will not only increase the length of time it will take you to pay back the debt, it will also do serious damage to your credit score. Paying off a higher portion of your credit card debt every month will lower your debt burden ratio and then eventually lead to you improving your credit score. This will show banks that you can manage your money smartly and you will appear to be less of a risk if you ever need to borrow.

SEE ALSO: This is how credit scoring in the UAE will affect you

Having multiple credit cards isn’t uncommon, and they may not damage your credit score alone. What matters is how you manage them and the circumstances under which you obtain them. If the credits cards are new, along with several new bank accounts, you could look like a risky borrower who suddenly wants access to lots of new credit. But if it seems like common sense to just get rid of the bad credit by simply closing the accounts and credit cards, think again. Closing credit cards can never help your score improve. If you close older credit cards, it can shorten your credit history. Older cards have the longest history of credit and payments and, therefore, may have a larger than expected influence on your credit. Cancelling a card, even if not in use anymore, could potentially end up giving you a poor credit score.

You should consider the number of loans you have if any. The more debt you have, the harder it will be to take out more credit. Put your financial spending into check, and it may be time to cut spending now to save later.

Patience isn’t a factor that’s used to calculate your credit score, but it’s something you need to have while you’re repairing your credit. Your credit wasn’t damaged overnight, so don’t expect it to improve in that amount of time. It may be easier said than done, but simply put, don’t buy what you can’t afford and always make payments on time – paying debts earlier than you need to is also a good option.

If you want to start improving your credit score by getting another credit card, click the button below to compare the best credit card that will benefit your finances and credit!

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