What Goes Into Your Credit Score and Six Ways to Improve It


When you apply for a business loan for your SME, every lender will look into your credit score. Having a good credit score, increases your likelihood of obtaining a business loan. The higher your score, the more leverage you have to negotiate better terms of credit.

What is a Credit Score?

A credit score is a little like your exam grades in school. It tells a lender how well you manage your debts and the chances of you repaying them. A credit score calculates your creditworthiness by looking into your past repayment patterns and credit history to give a detailed report to the lender.

A credit score ranges from 300 – 900, with higher scores indicating a better credit behavior. Typically, a business should aim for a score above 750. An SME that has a high credit score will be able to apply for a business loan with better terms such as lower interest rate, longer repayment tenure, negotiated fees, among others. This score becomes a vital component of evaluation especially while applying for an unsecured business loan because the lender needs an assurance of repayment while sanctioning a loan without collateral.

Who Calculates the Credit Score?

Just as everyone has a birth certificate, every business, SME or otherwise, as well as every individual with a bank account will have a credit score. This is computed by one of four credit information companies in India: TransUnion Cibil, Equifax Credit Information Services Pvt. Ltd, Experian Credit Information Co. of India Pvt. Ltd, and CRIF High Mark Credit Information Services Pvt. Ltd.

How is a Credit Score Calculated?

Your SME’s credit score, along with all other credit details, is collated in a report called the credit information report (CIR). There are four key factors that impact the credit score of an SME:

1. Credit History

An SME’s history of EMI or other bill payments plays a crucial role in determining credit score. If you have paid all your bills, EMIs and other dues on time without defaulting, your credit history will be strong.

2. Credit Mix

For an SME with pre-existing debts, the kind of debts taken on will impact your credit score. A healthy mix of secured business loans and unsecured business loans is ideal. The duration of these loans should also be a balance of short-term and long-term loans for the best impact on your score. A mixed debt portfolio indicates that your SME has more flexibility with repayment and will not have to default on one loan to service the other.

3. Loan Enquiries

The number of loan enquiries you make also impacts the credit score of your business. If too many banks or financial institutions request for your credit score within a short span of time, it could lower your score. The advantage of applying for a business loan through CreditEnable is that it won’t affect your credit score. CreditEnable only does a soft pull of your credit report to ensure no adverse affects.

4. Credit Utilisation Ratio

Credit utilisation ratio is the amount of debt you currently have in relation to the total credit you are eligible for. For instance, in case your business is eligible for a total loan of Rs.50,00,000 and you already have loans worth Rs.25,00,000, then your CUR is 50%. A high CUR indicates a high debt burden and will lower your credit score.

How to Improve Your Credit Score

Fortunately, a low credit score is not a lifelong curse for an SME. Improving your credit habits and behaviors can boost your credit score over time and give you access to the best business loans. Bettering your credit score can take anywhere between 6 to 12 months after instituting good credit habits.

Here are six tips to give your credit score a lift:

  1. Make payments regularly. Missed bills and EMIs lower your score.
  2. Keep your CUR low. Only take a loan when you absolutely need it.
  3. Before applying for a new loan, repay as much of your old credit as you can. This will lower your CUR and prove your creditworthiness.
  4. When you take a new loan, opt for a longer tenure to lower EMIs. This can help with timely repayments.
  5. Check your payment history and CIBIL score for possible errors. If something is wrong, rectify it immediately.
  6. Keep business and personal finances separate or split them up before going in for a business loan.


A strong credit score improves your chances of getting a loan, improves the amount you may be eligible for and quickens the loan process. It empowers your small business to apply for better financial assistance and control the financial narrative. Follow the guidance above from CreditEnable to improve your credit score.