Manage your credit before it manages you

If you are like the majority of UAE residents, you have almost certainly been tempted by the exciting offers available on the bewildering number of credit cards in the country. As a result, you may have accumulated three, four (or more) cards, most of which lie unused in your wallet or purse because they offer specific benefits that you only need occasionally – such as valet parking at a particular mall or lounge access at the airport. You probably rarely think about these cards and are most certainly unaware of any negative effect that they might have on your financial situation. In fact, you might consider them a “rainy day” source of income, an emergency fund. Here are three reasons why this is just not true.

Five per cent of the credit limit on all your cards – used or unused – is counted towards your debt burden ratio (DBR). Your DBR, calculated as the ratio of your equal monthly instalments – EMIs – over your total income, should not exceed 50 per cent, according to Central Bank regulations.

Credit cards take only a few minutes to sign up for, but can take up to three months to close down properly. Really? Yes, really.

Sometimes even when you have properly closed a credit card, it will continue to show up on your credit report for months or even years. As long as it is in your report, it is affecting your DBR, and this means you may struggle to take on any further credit, whether a mortgage, personal loan, car loan or even another credit card.

If you have multiple cards in your wallet, then ask yourself the following questions: a. Do you have credit cards that you do not (really) need or use? b. Is the credit limit on these cards largely unused? c. Are you at all worried about what features in your credit report? If the answer to any of the above questions is “yes”, here are the 10 steps to take to protect your credit rating:

1 Calculate your DBR. If you need help doing this, speak to an expert.

2 Figure out which of your cards are not essential. Anything that is not mission-critical, set it aside for step 4.

3 Visit Al Etihad Credit Bureau and pull your credit report. You will need your original Emirates ID, copies of old passports and Dh110. Check your report and ensure your debt commitments are being accurately reflected.

4 For each credit card that you are closing, personally visit each bank. Sit with a staff member and explain what you are doing, and why. Take your chequebook or cash for any miscellaneous charges that may have accrued on the card without your knowledge. Get a formal acknowledgement that you have closed the card on that particular day.

5 Apply for a “no liability letter”. Most banks will ask you to wait six to eight weeks before they issue this – the main reason that proactive management of your credit is so important. Follow up and get that letter issued. It is your right and far more important than you perhaps are aware of, as you will see in step 7 below.

6 Once the credit cards you wish to close are actually closed and you have the required letters confirming you have no liability with the concerned banks, visit the bureau again. Yes, you need to visit again, because for now the only way to check your credit report is in person. I can almost guarantee that at least one or more of the cards will still show as active in your report, meaning the bank has not updated your information with the bureau.

7 File a dispute with the bureau, using that precious no liability letter as proof you have indeed closed that card properly. Simply showing a monthly statement with a zero balance does not constitute evidence and will not be accepted by the bureau as sufficient to raise a dispute.

8 Once a dispute is registered, you will receive a dispute number. You can use this to follow-up with the bureau through email at disputes@aecb.gov.ae, or in person. Wait at least 20 days before following up, although the majority of cases are resolved quickly and you will be informed through email or telephone.

9 Once again, pull your new and improved credit report from the bureau. You are done, for now.

10 Every six months, check your report proactively to ensure the situation does not arise again.

Omar Abedin is senior marketing communications officer for Al Etihad Credit Bureau. The views mentioned above are entirely his own and do not reflect the views of the bureau in any way, shape or form.