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How DBR affects your eligibility for a new credit card?

By: Bankbychoice.com0 comments

Everyone desires a financially secure existence with a good salary and benefits. It’s difficult to maintain healthy financial health in the face of ever-increasing requirements and demands.

As a result, you take out loans to satisfy your rising desires, and your failure to manage the EMIs finally led to a debt overhang. This is the time when the majority of you are unaware that your debt overload may hinder your ability to obtain a new credit card. Not only that, but if you have a credit card, it can damage your credit score. A credit score is a number that indicates your creditworthiness and aids a lender in determining whether or not you are eligible for a credit card. It is the most important phase in determining a loan borrower’s or credit card holder’s credit score, as it is the credit history. If you want to get a new credit card, you’ll need to demonstrate your creditworthiness. You must also have a consistent income if you want to apply for a personal loan or a new credit card. The income requirements vary depending on the card’s features. You can get a credit card if you have a fixed deposit and meet the bank’s minimal income requirements. You must also have a stable source of income. Credit history, on the other hand, is something that demonstrates how you handle your credit-related actions. The moneylender prefers to issue a credit card to people who have a good credit history. If you have too many debts, this will highlight your unwillingness to borrow money through a credit card loan. Before diving into debt, you should be aware of one of the most crucial criteria: the debt burden ratio, or DBR. A debt load ratio is the sole way to calculate the excess amount of debts.

Now, what is the Debt Burden Ratio?

The Debt Burden Ratio, or DBR, is a mathematical ratio used by banks in the UAE and around the world to determine loan applicants’ eligibility. When your debt is out of proportion to your income, you have a debt burden ratio. It’s essentially the amount of strain your debts are putting on your income. To clarify, the DBR ratio is often defined as a percentage of indebtedness, such as 50%, that indicates how ‘leveraged’ you are. And it’s when your debt-to-income ratio exceeds 50% or more of your gross income. As a result, it will be tough for you to keep up with your EMI payments.

This is referred to be a circumstance where you have a lot of debt and are unable to borrow money. A higher fraction of the ratio suggests a higher level of debt, which may affect your ability to obtain a credit card.

Apart from that, a bigger debt load leads to a slew of additional financial issues, such as a failure to save, missed bill payments, and financially sound statements, to name a few. Increased indebtedness as a result of emerging needs or the need to keep afloat may result in a larger debt overhang, which will negatively impact you in the future. The debt burden ratio varies from person to person depending on their credit policy when lending a loan or issuing a credit card. You may also be ignorant of one of the major issues brought on by increased indebtedness, which is missing payments. If your monthly payments exceed 50% of your income, you are automatically drowning in excessive debt, which has a negative impact on your financial growth.

Previously, there was no such requirement on the debt load ratio in the UAE. Only candidates with a DBR of roughly 65 percent were eligible for loans, according to the institutions’ guidelines. This was established as the ratio’s upper limit, and if it exceeded 65 percent, the applicant was ineligible for any type of loan. However, as policy standards and time pass, the restrictions have been amended, and the ratio has been reduced to 50%. It is now difficult for a loan applicant to obtain a loan or credit card with the specified ratio limit.

The reason for the adjustment in ratio is also the loss that banks had to bear when the DBR limit was 65 percent since loan borrowers frequently defaulted on their payments. Some people become locked in a debt overhang when they obtain loans from multiple institutions at the same time, resulting in an irritating scenario.

As a result, in order to be approved for a new credit card, your debt burden ratio must be less than 50%. In normal terms, your debt-to-burden ratio should be zero or lower than your income in order to improve your credit score and make you eligible for a credit card.

With the advancement of time and the increasing demands of daily life, you are more likely to become involved in unlisted spending and forget about the consequences. Expenses continue to mount, but how you handle them with a lesser amount of debts becomes critical. When it comes to getting a credit card, you should be aware that revealing yourself as a hazardous borrower with too many debts will have a direct impact on your credit card eligibility criteria, and you will sadly be shown a way out. So that’s how a debt burden ratio influences your credit card eligibility.

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