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How Improve Credit Score For A Small Business Loan?

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Rashmi Sharma
How Improve Credit Score For A Small Business Loan?

Due to the rising cases of NPAs, frauds, and bad debts, the financial services sector in India has undergone numerous changes in recent years. Earlier, the branch manager had all the power to approve or disapprove a business loan application. Now, all the financial institutions follow a stringent and transparent procedure to process the loan application.

The application for a business loan is approved only if the borrower meets the eligibility criteria of the borrower. All lenders require a few documents, and they have pre-determined criteria, which is mentioned on their website. Thus, the application is only processed further if it meets all the requirements.

One of the major requirements to get the loan application approved is CIBIL score. It ranges between 300 and 900 and signifies the creditworthiness of an individual. Most loan lenders prefer the score to be more than 700. It lowers down the risk factor for the lenders. Therefore, lenders offer loans at lower interest rates.

The CIBIL score is affected by several factors; they can bring down the score. It is calculated by TransUnion CIBIL through a pre-determined algorithm. Notably, the score does not remain constant throughout time. It changes periodically as per the loans availed and their repayment track.

How to improve the CIBIL score?

You must keep track of the CIBIL score and determine the reasons if it goes below the required threshold of 700 for taking corrective measures promptly. You need to make sure that the score stays within the required threshold to avail credit facilities easily.

The following are some tips to improve the CIBIL score:

Pay EMIs on Time

You need to ensure that you pay your credit card bills and loan EMIs on time to make sure late payments don’t affect the credit score. If not paid on time, it will not only affect the score, but you will also need to pay exorbitant penal charges.

Keep Credit Utilisation Ratio Low

If you are completely dependent on your credit card for all your expenses, it will badly affect your score. You need to ensure that you keep your credit utilisation ratio below 30%. And if you are using multiple credit cards, ensure that its combined usage is below 30%.

Don’t Settle a Loan

If you wish to foreclose a business loan, ensure that you don’t settle it and pay the full amount. In case you enter into a settlement, it will negatively impact your credit score.

Never apply for Multiple Loans

Don’t apply for multiple loans together; this too, would reduce your credit score. Instead, do the research properly and only apply for the loan that meets all your requirement and whose eligibility you fulfil.

Keep old Credit Cards Active

Don’t apply for new credit cards, rather keep the old ones active. They will provide the history of your previous transactions and therefore, keep the score on the higher side.

With the above mentioned easy-to-follow tips, you can make sure that your credit score always stays above the line, so that you can avail credit facility easily.

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