UAE's Etihad Credit Bureau to cut credit score recovery period to six months

Dubai: Etihad Credit Bureau is set to introduce a new credit report format that will support customers who have experienced financial difficulties and later returned to making regular payments on their outstanding obligations. The bureau said that the new system, which is expected to be officially announced in the coming weeks, will allow the automatic improvement of a customer's credit score within up to six months of resuming regular repayments, compared with up to two years under the current system. Marwan Ahmed Lutfi, Director-General of Etihad Credit Bureau. Marwan Ahmed Lutfi, Director-General of Etihad Credit Bureau, said the new format includes a significant enhancement aimed at supporting customers who faced a temporary period of financial distress before returning to regular repayment behaviour. He said the new system will provide customers with a faster opportunity to restore their creditworthiness and improve their ability to obtain financing and banking services. "The amendment represents an important shift in the way previous default cases are dealt with, as the customer will no longer be restricted for long periods by the impact of previous payment delays after proving a change in financial behaviour and regularity in fulfilling obligations," Lutfi said. He noted that the six-month period does not guarantee that a customer's score will rise or reach a specific level, as the rating remains linked to overall financial obligations, payment behaviour and the information recorded in the credit report. Lutfi said a review of customer complaints showed the need for standards that take into account a customer's ability to regain access to financing once their financial situation improves and outstanding debts are settled. Under the new system, customer information will continue to be updated automatically and periodically, allowing credit scores to improve gradually during the approved six-month period. Credit score based on 300-900 scale Credit scores are based on a three-digit scale ranging from 300 to 900 points, with higher scores indicating lower credit risk. Banks and finance companies use the score as one of several tools in assessing applications for loans, credit cards and other credit facilities. The score alone does not determine whether an application is approved or rejected. According to previously published information from Etihad Credit Bureau, the current scoring model relies on more than 2,000 financial and behavioural variables, including: Timely repayment of loans and credit cards Number of overdue instalments Duration of payment delays Total outstanding balances Ratio of financial obligations to income Credit card utilisation levels Number of active credit facilities Bounced cheques Other financial behaviour indicators Greater transparency for customers The new report format is also expected to provide greater transparency by helping customers understand the main reasons behind changes to their credit score instead of only displaying the final figure. This will enable customers to take practical steps to improve their credit standing, such as maintaining regular payments, reducing outstanding balances, limiting credit card usage and avoiding multiple financing applications within a short period. The enhancement also coincides with the expansion of available credit data following the inclusion of buy now, pay later service account information, including data on current and new customers and related historical transactions. The new system aims to achieve a better balance between protecting financial institutions from default risks and giving borrowers who have experienced temporary financial difficulties a fair and faster opportunity to rebuild their credit history. It is also intended to encourage positive financial behaviour by demonstrating the impact of returning to regular repayments within a shorter timeframe, rather than allowing the effects of a previous default to remain for up to two years. Etihad Credit Bureau said credit scores will continue to be calculated using an advanced statistical model and did not disclose the weighting of individual factors or the number of points added or deducted for specific financial behaviours. A higher score on the 300-900-point scale continues to indicate a lower level of credit risk.