What is Credit Score & Why is it Important ?

What You Should Know

If you wanted to obtain financing, you would go to a financier (bank or a financial institution) and ask for financing. How does the financier know that you will pay the financing back? The best way for them to know how trustworthy you are as a obligor is to look at your credit score.

What is a Credit Score?

Your credit score is a three-digit number that tells financiers how likely you are to pay back your financial obligations. A credit score is on a scale from 300 to 900. A higher score means you are more likely to pay back financial obligations, while a lower score tells financiers that you are a riskier obligor, and you may not pay your financial obligations back on time or at all.

A score above 700 is considered good, while a score below 400 will make it hard for you to get approved for a credit card or financing. In the UAE, credit scores are calculated by the Al Etihad Credit Bureau (AECB) and are referred to by most financiers throughout the country.

The AECB takes into account several factors when coming up with your credit score:

Payment History – Have you always paid back your financial obligations back on time?
Number of Financing and Credit Cards - Do you have many financial obligation accounts?
Credit Utilization - How much of your credit are you using vs. the credit limit on your credit card?
Bounced Cheques - Do you write cheques that you do not have cash to cover?

Why You Want a High Score ?

A higher credit score is good for many reasons. Most importantly, a higher score tells financiers that you will probably pay back your financial obligations on time, in which case they’ll be more likely to offer you credit, and on better terms. Some of the benefits of a higher credit score are:

Access to more credit cards and benefits
Access to financing
Access to higher financing amounts
Lower rates on financing
Better rates on car or home Takaful cover

What Happens If You Have a Low Score?

A low score tells financiers that you haven’t been entirely trustworthy in the past when it comes to your financial obligations. This could lead financiers to hesitate when it comes to providing money to you, making it harder for you to obtain finance when you need it or making it more expensive for you to obtain finance. You might run into some of the problems if you have a low credit score:

Financing application rejections
Less credit card offerings
High rates on financing
Trouble getting a financing for a home

Know Your Score

Before you apply for a credit card, or any financing, know your credit score. You’ll at least have an idea of whether or not you may qualify for the type of financing or credit card you’re looking for.

To find your credit score, go to the AECB website at https://aecb.gov.ae/ and apply for a credit rating.