Combating coronavirus: Don't let Covid-19 wreck your credit score

When you're struggling to make ends meet, it is easy to cross out loan and debt payments from the long list of bills you have to settle for the month. However, experts warned this could lead to bigger problems in the future, and they are not only referring to interest and late payment charges: They are talking about your credit score.

Credit scores are tools that lenders use to determine whether you are qualified for a loan, credit card or mortgage. It tells them whether you are a "good borrower" who is likely to pay dues on time. Keeping a good score would help you get access to financial relief when you need it most.

"Whether you are an individual or a company, the information in your credit report is used by banks, finance companies, telecommunication operators, property managers and others to support them in deciding whether to approve, reject or ask for more information during an application for credit facility, service or rent," according to Al Etihad Credit Bureau. "So, it is important to maintain good credit history in order to avail many essential services."

Kamal Lalwani, senior consultant at Nexus Insurance Brokers, said the best way to keep a good score is to pay your equated monthly installments on time, even if it means paying the minimum.

Certain credit-related behaviours are also observed, such as making payments on or before the due date; avoiding bouncing cheques; reducing the number of credit cards and loans; cutting down outstanding balances; and keeping credit card limits in check.

With Covid-19-triggered pay cuts and budget problems, banks in the UAE have extended payment holidays and other relief measures to help residents weather the crisis. Experts urged borrowers to make the most of these measures especially if they are struggling to pay their debts. Customers who avail of payment holidays will be able to keep a good credit rating, they added.

Despite financial woes, residents have to make sure they are meeting their financial obligations.

Dr Kiran Sasidharan Nair, assistant professor of management and a Dubai resident, said: "The onus rests on us to have a healthy credit score to help us have access to credit whenever we want. We can improve our credit score by understanding the way of improving our credit score, borrowing wisely, and paying your credit bills as and when due. By doing this, we are actually helping ourselves."

Manya Pamnani, director for advisory and consulting at Crowe-UAE, said a good credit score translates to easier access to credit and lower interest rates.

"Its importance cannot be undermined especially in the current economic circumstances we stand in. Personally, I keep reminders (standing instructions with bank helps) for my credit card commitments, bills, loan installments. For ease of keeping track, I use one credit card only and it keeps my worries at bay."

Gaurav Gambhir, managing director at Lion Mortgage, agreed that using credit cards wisely is key. "I do not exhaust my credit cards limits. And when it comes to new borrowings, I only apply when needed and with a specific lender, which limits the number of inquiries on the loan requested."

WHAT IS A CREDIT SCORE?

Credit scores are tools that lenders use to determine whether you are qualified for a loan, credit card or mortgage. It tells them whether you are a 'good borrower' who is likely to pay dues on time. Keeping a good score would help you get access to financial relief when you need it most.

WAYS TO MAINTAIN A GOOD CREDIT STANDING

. Pay your equated monthly installments on time, even if it means paying the minimum

. Ensure you have enough funds for cheques you have issued

. Reduce the number of your credit cards and loans

. Avoid exhausting your credit card limits

. Apply for a loan only when you absolutely need it