If you live in the UAE, you may be peripherally aware of the launch of the Al Etihad Credit Bureau in 2014. The Bureau, as it is affectionately known in the industry, is a Federal Government company that collects, collates and disseminates credit reports on everyone in the country. Everyone who is credit-active, that is. So, if you have a credit card, personal loan, car loan, mortgage, overdraft facility or any one of the many forms of credit available in the UAE, you are included in the database.
What does that mean? Well, any bank that wants to know about your credit history – and that you have authorized to do so – may pull your Credit Report from the Bureau. In the past, the power lay with the loan applicant. They could choose which debts to declare, and which not to. Now, the power pendulum has swung over to the lender’s side. With the new Credit Reports from the Al Etihad Credit Bureau, the bank knows what you know. In fact, the bank knows more than you do, sometimes. This means that the ability to bend the truth about how many credit cards you have, or how many times you may have been late on a payment, or bounced a cheque – that ability has more or less evaporated.
So, what does that mean? Well, it means nothing – unless you are in the market for some form of credit. If you are looking for a personal loan to tide you through a tough patch, you might find it more challenging than in the past to get that loan, as banks look at your credit history before coming to a decision. Moreover, if your history shows a pattern of behaviour that is not designed to comfort the risk-averse lender, then you may or may not get the loan at all.
And now, along with Reports, the Bureau has informed banks that they will soon be introducing Credit Scores for all individuals. Cue dramatic drumroll please…
What is a Credit Score, you ask? Well, it’s a three-digit number that predicts your future credit behaviour. It is based on a very accurate algorithm perfected over decades in the developed world where Credit Bureaus have been functioning for much much longer than here. Those residents of the UAE who come from Western countries will know what a Credit Score is – and they will know all too well the importance of maintaining a good Score! In fact, you might say that people live and die by their Scores in North America and Western Europe… it is that important.
What does this mean to the majority of UAE residents, who are being exposed to credit reporting and scoring for the first time? Well, it means that we need to recognize the importance of maintaining sound financial behaviour and practices. It means that we need to appreciate that the consequences of our actions will be long-term, and we need to act accordingly. And, most importantly, it means that the days of “winging it” when it came to our financials are gone.
Our Score will become the new measure of our financial strength, our ability to pull credit when we need it, without fear or equivocation. As financial institutions introduce products that are linked to your Score range, the implications will grow. If your Score is high, that means that the cost of borrowing should be lower for you, your loan should be processed more quickly, and banks should be fighting for your business. Good news, right? Indeed. Unfortunately, if your Score is not great – well, I will leave it to you to add two and two.
What Score will YOU get?