What you should know about credit card default management in the UAE?
Posted: Jun 16, 2021
Credit card defaults should not be taken lightly, and credit cardholders should be well versed with the aftereffects of such defaults. It is important to understand that defaulted payments for a credit card are retained on record for many years, and this is even if you have repaid the entire defaulted amount. Defaulted credit card payments can have many long terms effects, which will be discussed in this article. It is crucial that one develops their financial knowledge about their credit card scores and constantly endeavor to maintain a good credit card report.
How is credit card score maintained in the UAE:
In the UAE, the federal organization of ‘Al Etihad Credit Bureau’ (AECB) is responsible for collecting all credit data and information and is tasked with the responsibility to provide accurate credit reports to individuals, financial institutions and also companies in the UAE. The AECB was established in 2014 as a PJSC entity wholly owned by the UAE federal government, with its offices in the emirates of Dubai and Abu Dhabi.
A ‘credit card report’ can be requested from AECB by any individual, company or financial institution in the UAE. Such credit card report could include the following details such the entire credit card history, payment history for the last twenty-four months, overdue payment amounts, records of defaulted payments, a record of bounced cheques.
What is a credit card score:
A credit card score can be understood as an independently maintained three-digit ranking, with a higher ranking indicating better credibility. A credit score is indicative of a borrower’s credibility and provides a roadmap to determine their creditworthiness. A credit card score ranking above 700 by the AECB indicates a good credit score. Essentially, any UAE resident might potentially have a credit card score to their name, depending on their various financial transactions. The process through which AECB determines credit scores includes compiling all data related to credit history based on loans, mortgage payments, credit card transactions, utility payments, court orders and judgments. All financial defaults in the UAE are linked to the name and id document of the defaulter and are thus automatically becomes part of the records maintained by the AECB.
A low credit card score can negatively affect you by:
- Potentially increasing your interest rates
- Potentially causing rejection of loan requests
- Reject causing denial for a higher credit limit
- Potentially increasing your insurance premiums
- Potentially affecting your business (for companies)
- Potentially affecting your mortgage rates
Any UAE resident can obtain their credit score and credit report through the AECB by paying a nominal fee. Obtaining a credit report and being aware of your credit score can be the first steps to have a clear understanding of your debt levels and taking the steps towards financial planning.
To increase your credit score, one can take the following steps, which include timely payment of all your bills. Also, frequent changes to your bank accounts can also potentially negatively impact your credit card score. Your credit card score will automatically increase when you refrain from adding more to your debt amounts and start clearing your debts. Instead of choosing the minimum payment options, one needs to focus on improving their debt history and essentially achieve a lower debt-to-credit ratio. Further, it should be kept in mind that credit card defaults can potentially trigger both civil and criminal cause actions against the defaulter, including instituting a travel ban. Depending on the value of the outstanding amount, the penalty can include imprisonment and or a fine.
Dr. Hassan Elhais is a legal consultant in Dubai, specializing in the drafting of all statements of claim, memos and consultation on litigation of all manner.