UAE's Al Etihad Credit Bureau to add monthly expense-to-salary ratio in credit reports for loans
UAE residents will need to show how they are managing expenses to be credit-worthy
Dubai: Are you planning to take a loan? Then make sure you have control on expenses.
Because the country’s Al Etihad Credit Bureau confirmed that it will make a key addition to an individual’s credit score. Credit reports will include an ‘expense to salary ratio (ESR)’.
This will provide an indicative figure for the individual’s payment obligations through a month against his/her salary. This will serve as an ‘additional parameter’ in measuring that person’s creditworthiness. And whether the additional loan exposure will be affordable. The ratio helps lenders understand a person's affordability rating by showing the total monthly payment obligations reported to the UAE credit bureau as a percentage of their reported salaries.
The ESR readings will also matter in a resident's transactions with his/her property manager as well as with the telecom provider. “The addition of ESR to the AECB reports is a natural step in our ongoing path towards generating data-driven insight for lenders to assess the credit worthiness of individuals,” said Marwan Ahmad Lutfi, CEO of AECB.
How is ESR scored?
The value is indicated as a percentage ranging from 0-100+ per cent, and indicate the individual’s financial obligations as a ratio to their salary. Information for the ESR takes into consideration active credit facility installments, credit card limits, and telecom and utility dues. The individual's salary is provided by banks as part of the regular data submissions to AECB.
“Credit reports are a direct reflection of an individual’s appeal and payment behavior to lenders like banks and financial institutions, but are also as important for other entities such as property managers and telecom service providers,” the CEO added.
Tightened lending criteria
Banks have been tightening lending criteria across the retail spectrum, and will get more so. Recently, the UAE credit agency came up with a feature that would give a likely indicator on the chances of a cheque bouncing.
ESR does not only provide banks and credit report users with insight on the individual’s spending behavior, but is a barometer for individuals themselves that will allow them to gauge their own spending habits and – hopefully – consider a more financially responsible alternative should their ESR be less than ideal