Good or Bad – A credit score is powerful!
Having a decent name in the industry is crucial for securing business loans from banks and other financial institutions. Companies need to maintain a profitable business throughout the year, which will speak for itself. So what is the parameter used by financial institutions and banks to measure a business? The CIBIL score or CCR (Company Credit Ratio) of your business is the yardstick to determine if a business is worthy of credit or not. Indifi is a platform that analyses data of various companies and assesses their creditworthiness. Higher the CIBIL score, the higher are the chances of getting a loan! Banks need to determine if their borrowers (business) are efficient in repaying the loan on time. The final scores will determine your eligibility for future loans and credits.
Also Read: Best-Tested Ways To Improve Your Cibil Score
What are the factors that influence your CIBIL score?
Imperfect Loan Repayment History
This is a significant factor that can influence the CIBIL score of a business. It is a summary of all borrowings and repayments done on behalf of your business. A company might get a low credit score if it has a poor history of loan repayments. The unpaid debt indicates that the company is not worthy of managing its loans, thus lowering the CIBIL score.
A mix of Credit
Businesses should maintain a healthy mix of both secured and unsecured loans. Having only one kind of credit will not improve their CIBIL score. A healthy blend of credits showcases the ability of a business to handle all types of debts successfully.
Multiple Loan Enquiries
Do you know that making various loan enquiries can negatively affect the CIBIL score? One or two enquires are fine. But going beyond that can have some drastic effects on the creditworthiness of the business. When a company applies for a loan, its credit history is pulled out — this process of called hard inquiry. Multiple loan applications might lower the CIBIL score, as numerous hard questions are made at the same time. Companies should avoid making enquiries if they are not confident of their eligibility for getting a loan. Also, they should avoid applying for a loan immediately after their loan application has been rejected. They should wait for six months before re-applying, to let their CIBIL score improve.
Company’s existing debts can also affect its CIBIL score to a greater extent. For instance, if a company has multiple debts going on under its name, it can expect a lower rating, until it manages to repay all of them successfully. This situation can be prevented by not applying for multiple loans at the same time.
Credit Utilization Ratio
Industry experts from Indifi, recommend keeping the existing credit utilization up to 30% of the income. If a company is continuously utilizing the credit up to the maximum limit, it indicates that it is credit hungry. This tendency can drop their CIBIL score drastically. This behaviour brings the business under the scanner, and its ability to repay loans on time becomes questionable.
How can timely credit repayments improve CIBIL score? When a company decides to settle its loan with a considerable amount of money, in a single payment, it can have adverse effects on its CIBIL score. This action can raise some eyebrows, thus decreasing the score. On the contrary, if the company plans to repay the loan in regular instalments, it will have a positive impact on the score.
Tips to Improve CIBIL Score
• Companies should be disciplined with their existing credits.
• They should maintain a durable and lengthy credit history.
• Companies should opt for the longest tenure for repaying the debts.
• Regular checking of CIBIL reports and rectifying them can improve the score.
• Create a credit history that comprises of different types of debts.
• Maintaining a healthy mix of debts.
• Avoid taking a massive amount of debts at a single time.
Advantages of a High CIBIL Score
• Debts with longer tenure.
• Lower interest rates on loans.
• Better negotiation.
• The higher limit for a credit card.
• Discount on debt processing charges and other fees.
• Faster approval on credit applications.
These are the significant factors that can affect your CIBIL scores. Many small business owners face problems due to low access to capital that hampers the growth of their business. Indifi is a leading name in this sector that offers loans to the companies that have both intent to repay and the potential to succeed. It collects the relevant loan applications and provides them to multiple lenders. This method makes the loan process shorter by reducing paperwork, minimizing risk, and other expenses. It is a medium between the lenders who are looking for suitable borrowers and the small scale business owners who are looking for lenders. Small businesses should follow these useful tips to maintain a good CIBIL score.