The Impact of Credit Scores on Mortgage Approval

The real estate market of Dubai attracts people from all over the world, and most of them have to apply for a mortgage to fulfil the dream of owning a home in this city. But when it comes to buying a house, a good credit score is one of the most important factors to secure a mortgage. Your credit score plays a crucial role in determining your eligibility for a mortgage. Lenders or mortgage companies often offer higher interest rates to those with lower credit scores and vice versa to borrowers with good credit scores. That is why you must have a good credit score when applying for a mortgage to buy a property in Dubai. 

What is a Credit Score & How is it Calculated?

A credit score is a numerical representation of your creditworthiness based on your credit history. There are several complex formulas and algorithms used to calculate credit scores. Even though every credit bureau may use different algorithms, most of them consider the same factors, such as debt amount, payment history, types of credits, credit utilisation, and the length of credit history.

According to AECB (Al Etihad Credit Bureau), a credit score of more than 680 is considered good in Dubai. On the other hand, if you have a credit score of less than 620, it is considered poor and will be difficult to secure a mortgage with this score. You must have a credit score of over 650 to qualify for a home mortgage. Below is the table to check where your credit score stands.

One important thing to note is that every lender has different credit score criteria, which depend on the type of mortgage you are applying for. So, it is better to ask about the credit score criteria from every lender you visit. 

What Impact Does Credit Score Have on Mortgage Approval?

When you apply for a mortgage in Dubai, the first thing lenders will assess is your credit score to determine how much risk you carry as a borrower. If you have a good credit score history, it will help you secure a mortgage with a lower interest rate. However, with a poor credit score, you might find it difficult to get mortgage approval, or even if you get approved, you will have to pay higher interest rates.

How Does Credit Score Work?

Al Etihad Credit Bureau (AECB) is the main government organisation in Dubai, and it holds all the records related to banking and credit. It uses these details to track your income levels and payment history and calculates a score based on your payment history. When issuing your credit score, AECB uses all of your data related to banking and credit. The credit score in Dubai ranges from 300 to 999, depending on your credit history.

When you apply for a mortgage, the lender will carry out a credit score check from AECB to find out about your credit history. Every lender has different minimum requirements for credit scores, and if your score falls below that range, your mortgage application will be rejected. That is why it is recommended to check your credit report from AECB before reaching out to the lender for a mortgage so that if there are any issues with your credit score, you can take steps to improve it. 

How to Check or Access Your Credit Score?

You can visit the Official Website of Al Etihad Credit Bureau or use their mobile app to request your credit report. Currently, they have 3 options available. 

• Credit Report and Score: AED 100+ VAT
• Credit Report: AED 80 + VAT
• Credit Score: AED 30+ VAT

It is worth requesting the full report with a score so that you have full details about your credit history.

How to Improve Your Credit Score?

Always Check the Information on the AECB Report

Mistakes can happen anytime, so always check your information when you receive your credit report. If you find any mistakes in your report, consult the institution and ask them to resolve the issue. So, if it was mistakenly posted on your file, it will be removed. AECB will always be there to assist you if you have any disputed records.

Make Payments on Time

AECB always wants to make sure that you can manage your finances. Making timely payments will give the organisation a strong indication that you have a solid profile to apply for a mortgage.

Avoid Bouncing Cheques

A bounced cheque will remain in your AECB credit report for a maximum of 5 years. If you have any bounced cheque in the last 5 years, it will have damaging effects on your credit score. If you have no clear reasons why it happened, you don’t get approval for a mortgage. 

Reduce Your Credit Card Limits and Usage

If you keep your credit card usage low and do not use the maximum limit, it will have a positive impact on your credit history, and ultimately, your credit score will improve.

Credit score can greatly impact your mortgage lending process. Bear in mind that these two are linked with each other. You will secure a favourable mortgage deal if you have a good credit score. On the other hand, a poor credit score will make it harder for you to get mortgage approval. Understanding the impact of credit scores on mortgages and improving your credit history will increase your chances of securing a mortgage at lower interest rates.