What is a credit score? How does this affect your mortgage?

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Getting a mortgage in the UAE is the easiest way to own your dream home. Banks like First Abu Dhabi Bank, Dubai Islamic Bank, Emirates NBD, etc. offer attractive mortgage rates to first-time buyers and investors. These, however, require a credit report and a credit rating in good standing. Some real estate companies like DAMAC and FAB Properties require a credit report long before you can even buy or rent one of the properties.

What is a credit report?

The credit report provides banks and other financial institutions with a detailed account of your financial transactions. Specifically, if you have already taken out a loan, failed to repay your previous loans, or paid off a loan in full earlier, etc. It also gives an overview of your current financial situation and your ability to repay the mortgage.

To obtain the credit report in the UAE, you must contact the Al Etihad Credit Bureau (AECB). The financial institution is responsible for calculating the credit scores of 4.5 million people and 200,000 businesses on a daily basis. Your credit report can be generated via the AELC online website and consists of vital information such as your full name and Emirates ID.

What is a good credit score?

In the UAE, credit scores are three-digit numbers ranging from 300 to 900. Your credit score depends on your overall credit history in the UAE. Things like when you pay your bills, defaulted payments, bounced checks, legal issues, number of credit cards in your name, types of bank accounts, and more are all taken into account. .

If your credit score is below 700, it means you have a low or low credit score. This score may be due to poor financial dealings in the past, such as not paying your credit card bills on time. A good credit score to have in the UAE is 700 or above. It indicates that you are financially sound and responsible for your financial dealings.

How Does Credit Score Affect Your Mortgage?

Banks and financial institutions use your credit report and your current credit score to assess your eligibility for mortgages. Any discrepancy can affect your mortgage such as:

  • Whether you are deemed capable of repaying the mortgage, which is directly related to the approval or rejection of the mortgage application.
  • Your mortgage rate is influenced by your credit score, as people over 700 may qualify for a lower rate than those under 700.
  • The approved mortgage amount is also affected, as those above 700 can get up to 80% of the purchase price.
  • Even the term of the mortgage depends on your credit rating with lower ratings often given of 10 to 15 years compared to the 25 or more years offered with high credit ratings.

Sound advice for potential buyers

It is advisable to get a credit report every year if you have no outstanding loans and every three to six months if you have loans. Credit card ratings change over time, especially if you follow good financial practices like paying bills on time, etc. By keeping an eye on your credit rating, you can avoid being rejected when applying for a loan to buy your dream home.

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