This month marks the first anniversary of the Al Etihad Credit Bureau. The presence of a credit bureau for UAE residents will redefine the way banks engage with borrowers.

What is a credit bureau?

The Al Etihad Credit Bureau is a national database that aggregates the borrowing history of individuals for the past 24 months. It allows banks to view the total debt an individual has across banks in the UAE. It also provides information on borrowers' utilisation of credit as well as repayment history.

Why is it relevant?

Up until recently retail lending was typically based on an assessment of an applicant's three-month bank statement and self-declared liabilities. Your employer rather than your own financial characteristics often defined whether you would be eligible for credit or not. This is changing; banks can now pull bureau data and assess the total debt repayment obligations as well as repayment behaviour of credit applicants. How you have behaved on your credit facilities will now be available to banks to make further lending decisions.

What will change?

1. It will become easier to enforce the Central Bank of the UAE's debt service regulation. This directive mandates that an individual should not commit more than 50 per cent of his/her monthly salary for the purpose of servicing debt obligations.

Here is a debt service ratio regulation example: If you earn Dh20000 a month your total debt repayments should not exceed Dh10000 per month. This includes personal financing auto financing as well as credit cards.

As a result individuals will not be able to borrow excessively.

2. Good credit will drive out bad credit: Since lenders now have a holistic view of an applicant they will be able to focus on "good customers" and turn down applicants who show signs of poor credit. Behaviour such as a disproportionately high personal debt missed repayments or bounced cheques will be penalised. This will take the form of outright declined credit applications lower amount of credit offered and/or a higher price for bad credit behaviour.

3. New frontiers: The availability of information will pave the way for prudent lending to those who have so far been left out by banks. In the absence of a centralised repository of individual credit data banks have shied away from lending to several segments. For example most banks require your employer to be "listed" with the bank. This lending model is ripe for oblivion. Decisions based on accurate personalised data of individuals will supersede limiting generalisations based on hunches and gut feels of lenders.

4. While the bureau and adoption by banks is at a nascent stage its usage is likely to evolve beyond banking. Whether you are entitled to a post-paid mobile plan whether your landlord accepts post-dated cheques from you or whether your retailer will allow you to pay for your new TV through a convenient monthly instalment plan could all potentially use your credit history.

How do you make sure that you build a good credit history?

The credit bureau will have an impact on your ability to borrow from banks and your financial credibility beyond banking. There are a few simple things you can do to make sure you build and maintain a good credit score.

1. Resist temptation: The bureau will list all credit facilities. Offers on credit cards you don't really need can be tempting. However aside from bulking up your wallet it can hurt your chances of getting that finance for your dream house as banks could consider you overleveraged. Even if you don't use them all the total potential credit exposure is the sum of credit card limits available to you. Get rid of cards you don't need or use regularly.

2. Pool your purchases: Use the same credit card (one or two) rather than several cards for small transactions. Small transactions charged across cards could inadvertently lead to oversight and financial mismanagement. You may have forgotten that card you used two months ago to buy that pair of shoes on sale but the bank hasn't. If your e-statement gets buried in your spam folder or if you make a mental note to pay after a couple of weeks it's unlikely you will remember and any delay will show up on your records.

3. Keep a clean slate: It's important to keep your slate clean at the bureau to maintain a healthy credit rating. If you are maxed out explore debt consolidation for large sums of money borrowed from multiple banks and/or credit cards. Set up reminders on your phone to pay monthly bills.

4. Being predictable is a good thing: Applying simultaneously for several credit facilities could alarm lenders. This is especially true in the UAE which has a significant expat population. So plan ahead. If you need to borrow do so over time and build an impeccable repayment record in the process.

5. Know your score: It may be a good idea to periodically check your credit report. The Al Etihad Credit Bureau allows individuals to access their credit history for a small fee. There may be reporting errors from banks and it never hurts to be vigilant. The bureau has a clearly laid out process to handle discrepancies.

Good credit

The presence of a credit bureau is good for everyone. It is a fundamental structural change that will prevent over leveraging of individuals yet widen the population that is eligible for credit. It will improve credit quality and enhance the customer experience. Over time it will also lead to divergence in rates charged to individuals. The credit bureau lays the foundation for sustainable and responsible credit growth in the UAE economy.

The writer is the head of consumer finance at Noor Bank. Views expressed are his own and and do not reflect the views of the bank or the newspaper.