I pay the minimum amount on my credit card. Will it affect my credit score?

Postponing monthly outstanding dues will have a direct impact on credit ratings

By Dhaval Jasani/Money Matters

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Photo for illustrative purposes only. - AP file
Photo for illustrative purposes only. - AP file

Published: Sat 11 Mar 2023, 5:00 PM

I am currently paying the minimum on my two credit cards. My total dues are Dh200,000. Will it affect my credit rating and my ability to borrow in the future?

Credit rating is ascertained based on several factors, including but not limited to credit limit utilisation, tenure of credit history, bill payment history, additional limits or loans availed during the period, overall borrowing that has been drawn etc. As you have pointed out, you are paying only a minimum amount due against the overall utilisation of credit limit and postponing your monthly outstanding dues, which will have a direct impact on your credit ratings.

In the UAE, Al Etihad Credit Bureau, a public joint stock company, owned by the UAE government, issues credit reports for Individuals and companies. Accessibility of your credit score through their application /portal is quite easy and you may wish to cross-check your score to ascertain the extent to which your scores would have been impacted, because of the overall amount due for repayment.

Given an option, we would advise you to accord priority to the settlement of these outstanding dues and restrict excessive utilisation of credit card limits in the future, if you intend to improve your credit score.

Should I make provisions for an emergency fund? I work in the hospitality sector where layoffs are common. How much should I set aside per month? I am 32 and earn Dh14,000/month.

Dhaval Jasani is a chartered accountant and the founder and CEO of ZTI. - Supplied photo
Dhaval Jasani is a chartered accountant and the founder and CEO of ZTI. - Supplied photo

Well, the answer to the first part of your question is certainly in the affirmative. Savings is one of the vital pillars of prudent financial planning. Savings is a continuous process, as is learning and earning. Be it work or business, individuals should be prepared to deal with any unforeseen events that may require immediate payment.

Ideally, every individual should initiate building up a corpus from the savings the moment he / she starts earning, which would be accessible during emergency (we term it as emergency corpus).

To start with, your first goal should be to build savings that would enable you to cover at least 6 to 8 months of your expenses. Ideally, for your age bracket, you may set aside at least 10 to 15 per cent of your monthly salary and incremental earnings for emergency corpus that is easily accessible always (held in a bank account) and should only be accessed in case of an emergency. As an example, Dh1,400 set aside every month would accumulate to Dh16,800 over a period of 12 months. In case you happen to utilise part of these proceeds, always ensure that priority is accorded to replenish the amount utilised.

Dhaval Jasani is a chartered accountant and the founder and CEO of ZTI. Views expressed are his own and do not reflect the newspaper's policy.

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