A bad CIBIL score can be the worst nightmare for people who require an urgent business loan to boost their business by providing adequate funds for it. A high CIBIL score is a major business loan requirement and with a low score, banks usually deny granting the loan.
There are different types of small business loans, ranging from machinery loan and equipment loans to capital loan and term loan. But the criteria of getting the loan approved remains the same, i.e., CIBIL score. And therefore, it is imperative for the business owner to maintain a positive score.
But, before understanding how to maintain a high CIBIL score, it vital to understand what exactly a CIBIL score is and how it can affect the business owner’s creditworthiness.
What is a CIBIL score?
CIBIL score is essentially a 3 digit number that ranges from 300 to 900. It is generated on the basis of a credit report and represents the borrower’s credit history. High CIBIL score (nearest number to 900) implies borrower’s good credit history while a low CIBIL score (nearest number to 300) can simply mean that the business loan or any other loan is not likely to get sanctioned.
All banks compulsorily require a high CIBIL score to grant a loan and NBFCs usually employ different criteria to measure the borrower’s creditworthiness. However, NBFCs also consider CIBIL score while granting the business loan. In all, a good CIBIL score can also be termed as an important business loan eligibility that the borrower is required to fulfil.
Now that you know how important CIBIL score is to get the business loan approved, take a look at the below-mentioned points that can help you improve your score.
1. Check Your CIBIL Score Regularly
Checking CIBIL score regularly is a good idea as it will help you keep a track of two important things. First, the existence of delayed payments or defaults, if any, which can bring your CIBIL score down. And second, if there is any wrong information mentioned on your score report. In case there is any wrong information entered, you can get the situation corrected.
2. Don’t Keep Applying For Loan
In case you have recently applied for a small business finance and your application was rejected, the information is recorded in the credit report and you are should not for a loan for other bank or NBFC immediately. Back to the back rejection of loan applications can bring down your credit score.
Also, if you have recently repaid your previous business loan, you should not apply for another loan for at least 3 months as this will show your credit hungry behavior.
3. Don’t Use the Entire Credit Card Limit
According to credit card rule, you should not exceed the 30% of the limit. Maintaining a good credit limit will talk about your financial discipline and management. Eating up all the credit limit will show your credit hungry behavior. Also, this will establish that you are always in need of funds. The best thing is to not to apply for a business loan or spent all the credit limit unless it is necessary as this will have a negative effect on your score and can bring your score close to 300.
4. Make Payments On Time
Consistency in payments will build creditworthiness and it will lead to an improved credit score. Also, timely payment of credit shows your responsible behavior. So, it is important to make all the payments on time. You should not wait for the last date to repay debts. Ideally, you should pay at least 5 days (working days) before the last day of payment, if paying in cash or having direct bank deduction. And, if you are making the payment by cheque, then it is better to make payments 10 days before the last date.
5. Ask Your Bank To Increase credit Limit
Asking your bank to increase your credit limit does not necessarily mean you want to spend more. This will show that you have much more credit limit available at your disposal but you are not using it entirely. In short, if you keep your credit utilization low with a high credit limit, this will have a positive impact on your score.
6. Retain your oldest credit card
In case you have multiple credit cards and are thinking to give up extra, ensure that you retain the oldest credit card. If you have been making your credit card payments on time and utilizing it within limits, it will show long history of making payments on time as compared to the recently acquired card.
To apply for a business loan, CIBIL score is a necessary thing to watch for. And now that you have gone through all the afore-mentioned points which will help you improve your score, do not just wait till the time you are in trouble and require an urgent business loan. Go ahead and improve your score now!