It is not mandatory for banks in the UAE to use the credit reports issued by Al Etihad Credit Bureau (AECB) when it comes to deciding on a customer’s loan application, according to an article in Emirates 24X7 News in September 2014. Credit cards debts can affect your credit score and eventually your capacity to obtain a loan without having to go round in circles trying to convince banks of your credit worthiness.
How to Avoid the Debt Trap
More than a bad score, accumulating debt can affect your daily expenses as well. Listed below are a few things that you must not do with your bank credit card and that can save you from getting into a debt trap.
1. Do not use your card to withdraw cash – There is a huge difference between a credit and a debit card. While withdrawal of money with the former is considered a mini loan, withdrawing from the latter is your own money. When you withdraw cash with the former, the cash is charged for interest at a certain percentage. Also, even if you clear you monthly balance, you are still charged a cash advance fee every time you withdraw cash.
2. Ensure that you make the minimum payments – It is essential that you make the minimum payments and more, if you can. When you pay more than the minimum payment, you are charged less interest than what you would be charged for minimum payments. The minimum balance is calculated off a percentage of the outstanding balance. If you repay only the minimum balance, it will take you longer to repay your debt and you will incur a higher rate of interest.
3. Watch out for balance transfer – You can get your balance transfer to a service provider that charges less interest. But you must also be aware of the interest rate hike after the initial months of low interest rate.
4. Do not use it like a debit card – Do not use it to pay for every day expenses, such as groceries, magazines and more. It leads to huge debt accumulation.
5. Do not miss the payment deadline – With online banking and ATM pay stations; it is much easier these days to pay your bills. You can also opt for automatic payment, where the minimum balance would be directly deducted from your account by the bank.
Apart from these things, you must also make sure to keep your bank credit card safe and secure to protect yourself against fraud or theft.