Credit Advisory

Credit Advisory Tips

Credit is one of the most misunderstood tools in the financial world. Used well, it can help you attain things you want in life – things that might otherwise be unavailable. Used not so well, it can get in the way of your hopes and your dreams. This guide to credit is designed to help you understand how credit works in today's world and in your household. There have been a great many changes over the past decade, not only in how credit is issued, but also in how you can keep track of and manage the credit you have. Having this information at your fingertips is the first step to making sure you stay on top of this important resource. So here is a step-by-step guide that answers typical questions about building credit and managing it.

Building Credit

How do I build a credit history?
The first step for building credit is to apply for credit. When you applied for your first credit or charge card, car loan, or utility, you filled out an application. The credit issuer called the credit bureau - SIMAH and, recognizing they did not have any information on you, started a credit file for you. And now, as you pay the bills on that credit or charge card or loan, your credit issuer sends relevant details about you to the bureau, telling them whether you pay on time (or do not), what your credit limit is and whether you stay within your credit limits. Each time you pay a bill or apply for credit elsewhere, your credit file grows thicker.. Although some information will eventually expire and be dropped from your report, a considerable part of your information will be available on the report as long as you have credit facilities

How did I get a credit score?
This credit score is a numerical translation of your credit report that future lenders (as well as insurers, employers, landlords and others) will use to make decisions about whether they want to do business with you – and, in some cases, how much to charge you, as well. Every time new information appears on your credit report your credit score adjusts.

Can I build my credit history / score using a debit card?
No. A debit card (and the checking account it belongs to) do not show up on your credit file. If you want to build your credit history, you need a credit or charge card, a loan, or other account that reports to the credit bureaus, like a utility.

What is a "thin" credit file?
It is a credit history that contains very little or no information. In some cases people with thin credit files may be denied credit because there is not enough there for a lender to base a decision on. If you have a “thin” credit file you should apply for additional credit and also ensure that you apply for the right type of credit. Consider applying for a secured credit card, which works much like a credit card but allows you to deposit a sum of money as collateral that then functions as your credit limit. After you demonstrate a good credit history for a period of 18 to 24 months you could ask your credit issuer to refund your collateral and convert your card to a regular old credit card.

 

How can I evaluate my score?
Credit scores typically ranging from 300 to 850.

Managing Credit

How do I keep my score high (or improve the score I have)?
You can keep your score high by doing just five things habitually:

 

• Pay your bills on time, every time. Making timely payments is an important factor in maintaining good credit. Late payments can result in declined services at the point of sale, late fees, commissions on outstanding balances or a credit limit reduction. Accounts that are seriously delinquent may be canceled and sent to collections.
• Keep the balances on your credit cards (and other types of revolving credit) at reasonable and manageable levels. Avoid going over your credit limit.
• Do not close old credit or charge cards (particularly the ones you have had the longest), as doing so will reduce your credit limits which in turn can adversely impact your score. Part of your credit score is your utilization ratio, which is the amount of credit you have available compared to the amount of debt you are carrying. If you have a total of SAR 75,000 in credit limits available across all of your cards and you are carrying SAR 22,500 in debt, your utilization ratio will be 30%. If you close one card with a SAR 25,000 limit then, and all of a sudden, your utilization ratio jumps to 45%. This may impact your score.
• Try to establish a mix of credit – not just credit and charge cards, but utilities, car loans and mortgages provided that you can afford them.
• Do not apply for credit you will not need.

We would also strongly encourage you to periodically obtain and review your credit bureau report by contacting SIMAH. You can obtain SIMAH contact details at http://www.simah.com/en/ContactDetails.aspx. A periodic review of your credit bureau report keeps you informed about your bureau score and its trend, all the credit facilities that you have including their payment status and any negative information reported to the credit bureau. SIMAH also discloses the key factors that were instrumental in arriving at your score. Based on your score SIMAH classifies into one of five categories ranging from very high risk to very low risk. This score and the resulting classification may have an impact on you when you apply for credit or when lenders review any existing credit facilities that they may have granted you. A regular review of your bureau report also protects you from identity theft which may occur if an unauthorized person uses your identity to fraudulently obtain credit using your name from a lender. In such cases you should contact SIMAH immediately to have this issue addressed

How many credit or charge cards should I have?
That is a bit of a personal decision, but generally you should have at least two. However, you need to recognize the difference between a credit and a charge card. A charge card does not allow you to revolve a balance. It must be paid off in full in about 25 days from the day your statement was generated. A credit card allows you to pay off your balance over time. For every month that you do not pay off your balance in full, you will be charged commission. Now, as for those two cards, the first should be a credit card with a low rate of commission in case you need to buy something that you will pay off over time. The second can be a credit or charge card that gives you something back for using it – a reward like frequent flyer miles or cashback. You should pay the rewards card off every month and for that reason, should consolidate as much of your spending on this card as possible to maximize the rewards you are able to earn. If you have a business, you may want a separate card for accounting purposes.

When should I use a credit or charge card versus a debit card?
Whether you should use your credit or debit card depends on a few factors. Remember, a debit card deducts funds from your bank account immediately while a charge card must be paid off in full within about 25 days from the date your statement was generated. Only the credit card gives you the option to pay off your balance over time. This can be helpful if you are talking about a large purchase that you cannot afford to pay for in a single month. However, using a credit card can also be expensive because you will be paying commission for every month you carry that balance. For example, if you have an outstanding balance of SAR 7,000 and you choose to pay only the minimum due, it will take 78 months to settle the balance in full. The total commission, in this case, would be SAR 5,896. If you can pay the balance off – use whatever card gives you the biggest rewards and the most in the way of consumer protection features. If you can't pay the balance off – consider whether you need to make the purchase now at all. If the answer is yes, use the credit card in your wallet that has the lowest interest rate or consider applying for a loan. Finally, if you can pay the balance off but you haven't used your credit cards in a while, consider using them for a small purchase once a month and paying that balance off. This will help you build a credit history and keep the one you have in good shape.

What should I do if I have difficulty in making my payments?
If you are having trouble making payments on your credit card, contact your card issuer to discuss your financial problem in a transparent manner. See if you reach an agreement with your issuer on a payment plan that takes into consideration your financial situation. Although it may be tempting, it may not be wise to seek an increase in your credit limit if you are having financial problems as this will likely worsen  it. Please be wary of any predatory lenders who promise to solve your debt problems in a speedy manner with limited documentation or contracts as these lenders may impose an extraordinary high (and often hidden) cost.
If you have difficulty in making your payments, try to continue making at least the minimum payments on your card and payments on loans that may have your home or your car as collateral. Try to pay off the balance on the card which is most severely overdue or the balance on the card with the highest APR as this will save you money each month. . Also consider taking the following actions:

• Economizing on your monthly living expenses to ensure that sufficient savings are left over for debt servicing. Ask your issuer to lower your credit limits to manage your spending within your budget.
• Selling non-essential assets that may not be required for your business or your employment.
• Seeking restructuring of any personal loans, mortgage loans or other installment loans that you may have.
• Reducing the number of cards that you have to just one and ensuring that you pay the bills on time so that you do not end up paying unnecessary fees and charges.

Contact American Express (Saudi Arabia) Ltd. as soon as possible if you are having problems in payments on your American Express cards, or if you anticipate that you will be having a problem. You may contact us and ask for the Credit Risk Department, find all the details on the below table

CUSTOMER SERVICE CONTACT DETAILS

Credit Cards & Consumer Charge Cards: 8001242229 (inside kingdom) or +966 11 292 6666 (oversees)

Corporate and Business Cards: 800 440 0004 (inside kingdom) or +966 11 292 6661 (oversees)

Platinum Services: 800 119 5555 or +966 11 407 1999