Individual credit scoring system to empower UAE banks and customers

Al Etihad Credit Bureau’s (AECB) recent launch of individual credit scores for UAE citizens and residents is expected to empower banking customers in the UAE to command better pricing of loans and enhance responsible lending, according to bankers.

The credit score will help financial institutions make better-informed decisions, process credit card and loan applications faster and provide preferential benefits for those with high scores.

Individuals can now obtain their credit scores by visiting the Bureau’s customer service centres in Abu Dhabi and Dubai, providing their original valid Emirates ID Card and Passport(s).

“The launch of the credit score is in line with AECB’s ongoing commitment to adopt the highest international standards in credit reporting and enhancing the UAE financial infrastructure,” said Marwan Ahmad Lutfi, CEO of AECB.

The credit score is a three digit number that ranges from 300 to 900 and measures how likely a consumer is to default within 12 months. It is calculated using information from various sources, like banks, finance companies and telecom companies. The score changes according to credit payment behaviour; a low score indicates a higher risk whereas a higher score indicates a lower risk.

“The launch of the Al Etihad Credit Bureau’s credit scoring system is another major milestone in the evolution of the financial services industry in the country. This is clearly good news as it will go a long way towards helping customers better manage their debt. It will also give banks much needed visibility of a potential borrower’s total obligations to lend responsibly,” said Kunal Malani, Head of Customer Value Management, Mena, Retail Banking and Wealth Management, HSBC. Benefits

Banker say, over time, customers with better credit scores will get access to better pricing while it will encourage prudent lending decisions across the financial services industry, which will further contribute to the strength of the UAE’s economy and financial system.

Across the world, benefits from credit scores for individuals range from better negotiating power in pricing of loans and banking products to lower insurance premiums, better mortgage rates, rental benefits and potential discounts based on financial discipline.

The whole concept of credit score is expected to instill better credit culture and individual financial discipline. “When the is a mechanism to measure one’s credit history, naturally there will be decline in delinquencies,” said the retail banking head of a local bank.

Bankers say loose financial discipline leads many customers to excessive borrowings and gradually into debt traps. “We have seen instances where customers take on debt to cover everyday expenses, and to fund extravagant lifestyles, but they do not have the capability or the income to make repayments in time, which is when borrowing can get out of control,” said Malani.

Higher cost of borrowing

With close monitoring of individual financial discipline in place in the UAE, bankers urge customers to pay close attention to their individual debts and repayment obligations to avoid poor credit scores that could result in higher cost of borrowings to potential denial of credit or other financial services.

According to AECB there has been big participation from banks and financial institutions in supplying credit data. To date, 59 financial institutions and telecommunication companies have provided their customers’ credit data to the Bureau and 64 Institutions have subscribed to AECB’s credit reporting services.

Factbox: Calculation of credit score

The credit dcore is calculated using information from various sources, like banks, finance companies and telecom companies.

Individual Credit Score is dynamic, and changes according to one’s credit and payment behaviour. Missing or delaying a payment beyond the due date, frequently utilising all your credit card limits, or taking on additional loans or credit cards may lower one’s credit score.

However, reducing the number of credit cards, consistently reducing outstanding balances, and making payments on or before the due date will improve the credit score.