By: Shaily Acharya

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Everyone wants a financially stable life with a handsome income and perks. Amidst the increasing needs and demands of day-to-day life, it becomes hard to manage sound financial health.

Thus, to satiate your growing desires, you buy loans, and the failure of managing the EMIs eventually led you into debt overhang.

This is the time when most of you do not realize that this overhanging of debts can also affect your eligibility for the issuance of a new credit card. Not only this, but it can also lower your credit score for those who own a credit card. A credit score is something that shows your creditworthiness and helps a lender to decide if you are eligible for a credit card or not. It is the most vital step as the credit history for a loan borrower or credit card holder in determining their credit score. Showcasing creditworthiness is important if you are looking forward to having a new credit card.

And if you are planning to apply for a personal loan or a new credit card, then you must have a regular income. The income criteria differ according to the specifications of the card. You can avail credit card against your fixed deposit and minimum income set by the bank, and you must have a durable source of income. But at the same time, credit history is something that shows how you manage your credit-related activities. Sound credit history is highly preferred by the moneylender for the issuance of a credit card. If you are overburdened with too many debts, then this in turn completely highlights your inability to borrow money through a loan credit card.

Before plunging into the debts, you need to know about one of the most important criteria that is the debt burden ratio known as DBR. The excess number of debts can only be calculated through a debt burden ratio.

Now, what is the Debt Burden Ratio?

Debt Burden Ratio or DBR is a mathematical ratio to calculate the eligibility of loan borrowers and this is done by the banks in the UAE and around the world. The debt burden ratio specifies when your debt is not in proportion to your income. It is basically the amount of burden that your debts put on your income. To understand better, the DBR ratio is generally termed as the amount of percentage like 50% of debts which shows how ‘leveraged’ you are. And it is the situation when your debt burden ratio crosses 50 percent or more of your income. Subsequently, it would become difficult for you to keep up with your EMIs. This would be called a situation of higher debts which makes you ineligible for borrowing loans. A higher proportion of the ratio indicates the higher debt and may negatively impact your eligibility for the issuance of a credit card.

Apart from this, the higher number of debts also results in various other financial problems that may include failure in savings, missing bill payments and financially sound statements, etc. The increase in debts as with budding necessities or to stay inundated will create a greater debt overhang and adversely affect you in future terms. The debt burden ratio can vary from person to person who lends a loan or issues a credit card as per their credit policy. You would also be unaware of one of the main problems caused by the higher debts and that it is your missed payments. If your monthly dues are over 50 percent of your income then it automatically drowns you in too high debts that have adversative effects on financial growth.

Notably, in earlier times in UAE, there was no such compulsion on the debt burden ratio. The banks had set criteria of providing loans only to the applicants whose DBR was hovering around 65%. This was determined as the upper limit of the ratio and if the limit goes beyond 65 percent then the applicant was not eligible for any kind of loan. But as per the policy standards and change in time, now the limits have been revised and the ratio has been changed to 50 percent. Now, it is not easy for a loan applicant to get a loan or credit card with the set limit of the ratio.

The reason behind the change in ratio is also the loss that was being borne by the banks when the DBR limit was 65 percent as the loan borrower usually failed to pay their dues. There are some people who get trapped in the overhang of debts when they procure loans from many banks simultaneously and this resulted in an obnoxious situation.

Therefore, to qualify for the issuance of a new credit card, your debt burden ratio must be less than 50 percent. In standard terms, the debt to burden ratio must be preferably zero or must be lower than your income so that you may have a better credit score to show for being eligible for a credit card.

With the rising era and increasing requirements of daily life, you usually get into the unlisted expenses and forget about the aftermaths then. The expenses keep arising but it becomes really important that how you manage it well with a smaller number of debts. When it comes to buying a credit card, you should know well that you should not be revealed as a risky borrower holding too many debts as it would directly affect your eligibility criteria of owning of credit card and unfortunately you will be shown a way to exit. So, this is how a debt burden ratio affects your eligibility for a new credit card. And it becomes hugely significant to have a good credit history with a low amount of DBR that can strongly improve the chances of getting a new credit card without any irregularities and losses.

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