If you’ve got a business loan before or started doing your research to find the right loan for your business, you may have come across the team “CIBIL score” or “bureau score” or “credit score”. TransUnion CIBIL is one of the four credit bureaus in India, authorized by the Reserve Bank of India to develop credit reports and credit scores of individuals and businesses in India.
When you apply for a loan, no matter the type of loan, lenders will check your credit report and credit score to ensure you meet their basic loan eligibility before conducting a thorough credit assessment of your profile. This assessment helps them make their decision to lend to you.
What is a credit score?
Your credit score is a three-digit number which helps lenders decide how likely you are to repay a loan they lend to you on time. It is an important factor in your financial life. The higher your score, the more likely you are to qualify for loans and credit cards at the most favourable terms, which will save you money.
If your credit history is not where you want it to be, you’re not alone! Improving your credit score takes time, but the sooner you address the issues that might be dragging it down, the faster your credit score will go up.
What can I do to improve my credit score?
You can increase your score by making the following changes in your financial behaviour:
1. Pay your bills on time
When lenders do a hard pull of your credit report review your credit score, they’re very interested in how reliably you pay your bills. That’s because past payment performance is usually considered a good predictor of future performance.
You can positively influence this credit scoring factor by paying all your bills on time as agreed every month. Paying late or settling an account for less than what you originally agreed to pay can negatively affect your credit score.
If you’re behind on any payments, do everything you can to bring them current as soon as possible. Although late or missed payments appear as negative information on your credit report for seven years, their impact on your credit score diminishes over time – older late payments have less effect than more recent ones.
2. Maintain low utilization on your credit cards
The credit utilization ratio is another important number in credit score calculations. It is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit.
For example, if you typically spend ₹ 2,000 each month and your total credit limit across all your cards is ₹ 10,000, your utilization ratio is 20%.
Lenders typically like to see low ratios of 30% or less, and people with the best credit scores often have very low credit utilization ratios. A low credit utilization ratio tells lenders you haven’t maxed out your credit cards and likely know how to manage your finances well.
3. Dispute any inaccuracies on your credit reports
You should check your credit report regularly. This keeps you informed about your credit score and allows you to check for any inaccuracies on the report. It is good practice to verify that the accounts listed on your reports are correct. If you see errors, dispute the information, and get it corrected right away!
Incorrect information on your credit report can negatively impact your score. So, monitoring your credit on a regular basis can help you spot inaccuracies before they can do damage.
What can I do to maintain a low credit utilization ratio?
You can positively influence your credit utilization ratio by doing the following:
1. Only open new credit accounts when needed
Unnecessary credit can harm your credit score in many ways, from creating too many hard inquiries on your credit report to tempting you to overspend and accumulate debt.
2. Keep your credit cards open even if you don’t use them
Keeping unused credit cards open is a smart strategy as long as they’re not costing you money in annual fees. Closing an account may increase your credit utilization ratio because the amount of total credit available to you reduces when you close the account. Owing the same amount but having fewer open accounts may lower your credit scores.
3. Don’t apply for too much new credit which will result in multiple inquiries
Opening a new credit card can increase your overall credit limit, but the act of applying for credit creates a hard inquiry on your credit report. Too many hard inquiries can negatively impact your credit score, though this effect will fade over time. Hard inquiries remain on your credit report for two years.
What information is on my company credit report?
Your company credit report or Commercial Credit Report (CCR) is based on information provided by many lending institutions across India. It is a record of your company’s credit history and acts as an indicator of your company’s future credit activity and financial health.
By reviewing it along with the other information about your business you provide to the lender when you apply for a business loan, lenders develop a 360° understanding of your business and its financial health.
It is comprised of many sections, including the business background, credit score, financial details, payment history, and previous searches.
Whenever you apply for a business loan with a lender directly, it gets recorded in the “Previous Searches” section of your report because a lender will do a hard pull of your credit report. If your credit report has been pulled multiple times in the recent past, it may lead a lender to think your business is in a cash crunch and that you have been unable to find a lender willing to lend to you.
Instead, try applying for a business loan with CreditEnable. When you apply for a business loan using our technology platform, our lender-matching algorithm first checks your business loan eligibility by doing a soft pull of your credit score. This pull has zero impact on your credit score as it is not directly associated with a request from credit.
If your credit score is over 750 and you are eligible, we’ll process your loan application further. If you aren’t, we’ll tell you upfront and prevent you from submitting another loan application that is likely to get rejected. We will also recommend steps to improve your creditworthiness and get the business loan you need in the future!
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