How can I improve my CIBIL score in order to get a business loan?

  • Business Loans
  • 3 Months ago
CIBIL score for Business Loan
HIGHLIGHTS

  • Introduction
  • Factors that affect CIBIL score
  • Key Takeaways


In any loan approval procedure, the CIBIL score plays a significant role. A person with a high CIBIL score has excellent chances of business loan approval when compared with a person with a low CIBIL score. To enhance your credit score, pay off your debts/EMIs on schedule. Plan and estimate your payments using readily available EMI calculators or business loan EMI calculators. Click here for business loan EMI calculators. Businesses can get loans through online business loan websites.

Factors that affect CIBIL score

The Five factors and their impact on your CIBIL score for a business loan are:

  • History of the payment - 35%
  • The utilisation of the credit - 30%
  • Credit history length- 15%
  • New credit enquiries - 10%
  • Different varieties of credit that are in use - 10%

There are several types of loans. But regardless of the type of loan you apply for, the bank will check your credit score every time you apply. If your credit score is poor, your chances of securing a business loan are low. A decent CIBIL is more than 750.

Have you got a bad credit score? Then your prospects of getting a loan are slim. Do you want to know how to increase your CIBIL score? Then don’t worry. We have got you covered. We'll provide you with the best way to increase your CIBIL score. Read the following procedure to increase CIBIL score - 

Pay dues on time

Are you aware of this? Payment history makes about 35% of a credit score. So, if you've been slacking on your EMI or loan payments, now is the time to get back on track. Make sure you pay your bills on time. Make a note of the due dates so that you won’t miss it to pay. Some applications on android and IOS send reminders in the form of text messages and notifications. Try to use them. Late payments result in fines as well as a drop in your CIBIL score. Setting up an auto-payment option on your bank app is one of the greatest ways to pay your bills on time

Reduce the percentage of credit utilisation

Credit utilisation is nothing but how much percentage of the money the user is taking as a credit on the overall available credit limit on all the cards. This affects 30% of the credit score. An example is provided below for a clear understanding.

There are two persons, A and B, with a credit limit of 1 lakh & 2 lakh rupees.

Both of them have taken the credit of Rs.50000/- each. In the above case, person A’s credit score would be badly affected but not B’s. Here we have a straight answer for the above scenario, i.e., the credit amount of Rs.50000/ is 50% of person A’s credit limit (1 Lakh), but for person B, it is only 25% of his credit limit (2 Lakh).

If the user utilises above 30% of the credit limit, it is considered a bad sign by the creditors. To avoid a bad credit score, always maintain low credit utilisation, i.e., below 30% of the overall credit limit on all cards.

Don’t deactivate older credit cards

Yes, you did hear me correctly. Your previous credit cards should not be deactivated. The duration of your credit history accounts for 15% of your credit score. Each time one credit card is disabled and a new one is applied, it can affect your credit score badly. As a result, save your older cards for as long as feasible. It raises your credit score (CIBIL).

Repay existing business loans

Every time you apply for a loan, the lender will do a thorough investigation into your credit history. Your credit score will suffer if you have a lot of hard inquiries. 

Hard inquiry - A hard inquiry occurs when a banker inquires about your credit score as part of the loan approval procedure. 

Soft inquiry - Pulling your credit score is referred to as a soft inquiry.

Maintain Credit Mix

This is of least priority among all the other factors. Credit mix is nothing but the types of credit in use. It determines the different types of credits such as credit cards, bank loans, mortgages, etc., the lender is using. This accounts for only 10% of the overall credit score. Users neglect this factor because they need to open different credit accounts to maintain this.

Review your credit score

Review your credit score over a while. Sometimes credit rating agencies delay updating the score. They may make mistakes like incorporating incorrect details. There is a chance of your repaid loan not getting updated on the report. So, it is better to review the credit score from time to time. If you take such mistakes to their attention, they can correct them. You can always use credit score checkers to know the score. The credit rating agency itself provides a free CIBIL score, so you can easily use their CIBIL score checker.

Any of the following might be errors in the report:

  • Balances in accounts
  • After the loan has been repaid, there will be an overdue sum.
  • Closed loan accounts continue to show up on your credit report.
  • Theft of one's identity
  • Details about a loan that you did not take out.

Avoid joint accounts

If you are a joint account holder, then your partner's mistakes can affect your credit score. Let us say if the other person misses any payment, then you also become liable for that. Not only that, do not be a guarantee for other loans. If they default, it can affect your score.

Shriram City Union offers business loans at the lowest interest rates. Loans start at an interest rate of 15%. Loan processing is secure and fast with flexible tenure and easy repayments.

Key Takeaways

Maintaining a good CIBIL score will increase your chances of getting your Business Loan authorised. A score of 750 is generally regarded as acceptable for getting your Business Loan application accepted. It takes 4 to 12 months to improve the CIBIL score. Use finance calculators for planning the EMIs better. Here are some suggestions for improving your CIBIL score:

 

  1. Make sure you don't get behind on your credit card payments.
  1. Make on-time payments on your loans
  1. Reduce your credit card utilisation to 50% of the available credit.
  1. Don't apply for a loan from many lenders.
  1. Combine your unsecured business loan with a secured loan to get the best loan mix possible.
  1. Verify that the information on your credit report is correct and up to date.