Most of the banks in UAE, as of this day, base their interest rates on the borrower’s credit score but there is a handful of brilliant go-to methods that can help you improve your credit score with loans. How? Well, the credit history that you maintain eventually determines your credit score and a high credit score would mean a lower interest rate. It represents your credit-worthiness that reflects how much risk lenders perceive when giving you the money.
So, ensure that you improve your UAE credit score while taking out your loans. We recommend you 3 ways to do so. Read on…
UAE Credit Score
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Tips to build your UAE credit score while taking out a loan
Before we discuss the methods to have a better credit score with loans, here are a few points that you should keep in mind to maintain and improve your credit score every time you avail a loan:
- Decide the loan amount carefully – Always make sure that you only borrow the amount that you need and not more. Do not borrow extra money to save the rest for other purposes or for future use.
- Make regular loan payments – To avoid missing your due date, set a reminder on your phone a few days beforehand or mark the date on your calendar. You can also adjust your online account settings so your bill is paid automatically on a certain day of the month through a direct bank draft.
- Do not close loans prematurely – Do not close the loan before the loan matures. A longer period of credit history is always considered better. If you keep making regular payments for a long time period, your credit score will grow better.
- Do not apply for multiple loans – Make it a point to only borrow what you can afford to pay back. It is always advisable to pay your old debts off before being subject to new ones.
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Methods to improve your credit score with loans
Given below are the three most popular and least risky methods to take out a loan and build your credit score.
- Debt Consolidation
- Credit Builder Loan
- Smaller Loan
Debt consolidation
Debt consolidation is not only the most popular method to overcome debt but also helps in building your credit score. For example, if you have three credit cards of different interest rates with an outstanding balance on each of those cards, you can pay the outstanding balance off by availing a personal loan and then, make payment for the personal loan with one payment per month. Since you paid off your credit card dues as well as your personal loan, your credit score is bound to increase. This method also helps customers in saving money since personal loans offer lower interest rates than credit cards.
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Credit builder loan
A credit builder loan is a loan where the borrower does not get access to the money until it is fully paid. Fixed payments are to be made each month towards the total amount of the loan. You will finally receive the fund amount through access to a savings account with the loan amount in it once the total amount, along with interest, is paid off. By this time, you will have a good credit score built through regular monthly payments.
Smaller loan
Applying for a smaller loan is one of the easiest ways of improving your credit score and having a better credit history. The best way to go about it is to apply for a small cash loan of up to AED 5,000 and repay the loan amount in 6 months or a higher time period. If you have enough money to close your small loan, you can pay the loan amount in bulk but remember to not close the loan before the loan matures. This will quickly improve your credit score.
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Loans are not simply meant for financial emergencies. If used effectively, they can act as a valuable tool for building credit scores. That being said, you have to understand your financial position before you apply for a loan and be very cautious regarding the payment of loan amounts. If you are not in a position to repay a loan, avoid falling into a debt trap as it will only cause damage to your credit score instead of improving it. Always remember that a higher credit score brings with itself better financial options.
Original Post Date : Jun 22, 2020 , Updated on : Oct 19, 2020
Hello.
I have a question, my credit score has gone down recently. This happened after I closed one of my credit credits. My liability is 28% and I have my loan on time, my credit cards (*2) I pay the 5% monthly payment except I do use the credits from time to time. All my utilities is paid on time. How can my credit score be this low, (331) ?