A good CIBIL score is essential for securing a business loan. It reflects your creditworthiness and influences the terms of the loan you can get. Usually, the ideal CIBIL score for a business loan is 750 or more. Let’s explore the factors that affect your CIBIL score and provide actionable insights to help you maintain a healthy score.

Credit Utilisation Ratio

Your credit utilisation ratio represents the portion of your available credit that you have used. A high ratio indicates that you are over-reliant on credit, which can negatively impact your score. Aim to keep this ratio below 30%.

Tips:

• • Spread out your expenses across different credit accounts
• • Increase your credit limit while keeping your spending constant

Repayment History

Your repayment history is the most significant factor influencing your CIBIL score. Late payments, defaults, and settlements can severely damage your score.

Tips:

• • Set up automatic payments for your loans and credit cards
• • If you miss a payment, try to make it up as soon as possible

Credit Mix

A balanced mix of secured (like home loans) and unsecured loans (like credit cards) can positively impact your score. It shows lenders that you can manage different types of credit.

Tips:

• • Avoid relying solely on one type of credit
• • Ensure you have a healthy mix of credit accounts

Length of Credit History

The longer your credit history, the better your score. It gives lenders a comprehensive view of your credit behaviour over time.

Tips:

• • Keep your oldest credit card active
• • Avoid closing old accounts, even if you don’t use them often

Number of Credit Inquiries

Each time you apply for a loan or credit card, the lender makes an inquiry into your credit report. Multiple inquiries within a short period can lower your score.

Tips:

• • Space out your credit applications
• • Avoid applying for multiple credit lines simultaneously

Outstanding Debts

The total amount of debt you owe affects your score. High levels of debt can indicate a higher risk of defaulting on new loans.

Tips:

• • Pay down your debts as much as possible
• • Consolidate debts to make them more manageable

Old and New Credit Accounts

The average age of your credit accounts also impacts your score. Older accounts contribute positively, as they show long-term credit management.

Tips:

• • Maintain older credit accounts
• • Avoid opening too many new accounts in a short period

Public Records and Defaults

Bankruptcies, foreclosures, and other public records have a severe negative impact on your score. These records stay on your report for up to seven years.

Tips:

• • Avoid situations that could lead to public records
• • If you have any, focus on rebuilding your credit through responsible borrowing

Settlements

Settling a debt for less than the full amount can harm your CIBIL score. Lenders view this as a sign that you may not be able to repay your loans in full.

Tips:

• • Avoid settling debts unless absolutely necessary
• • Try to negotiate better terms with your creditors instead

Credit Card Balances

High balances on your credit cards can indicate poor credit management and negatively affect your score.

Tips:

• • Keep your credit card balances low
• • Pay off your credit card bill in full each month

Multiple Loans

Having multiple loans can strain your finances and hurt your score. Lenders may view you as a high-risk borrower.

Tips:

• • Limit the number of loans you take
• • Focus on repaying existing loans before taking new ones

Payment Patterns

Consistent payment patterns, such as paying your bills on time and in full, positively affect your score. Irregular or late payments can harm it.

Tips:

• • Develop a habit of paying all bills before the due date
• • Use reminders or auto-pay services to avoid missing payments

Errors in Credit Report

Mistakes in your credit report can unfairly lower your score. Regularly check your report for errors and dispute any inaccuracies.

Tips:

• • Review your credit report at least once a year
• • Report any errors to the credit bureau immediately

Improving Your CIBIL Score

Improving and maintaining a good CIBIL score is crucial for accessing business loans with favourable terms. Here are some steps to help you improve your score:

• • Regularly Monitor Your Credit Report: Check your credit report for any discrepancies and get them corrected immediately
• • Pay Your Bills on Time: Timely payments are the most significant factor in maintaining a good credit score
• • Limit New Credit Applications: Multiple applications for credit can negatively impact your score
• • Reduce Debt: Work towards paying off your existing debts to improve your credit utilisation ratio
• • Maintain a Balanced Credit Mix: Have a good mix of secured and unsecured credit to show responsible credit behaviour

Your CIBIL score is a critical factor in securing a business loan. By understanding the elements that affect your score and taking proactive steps to manage them, you can ensure a healthy credit profile. This not only improves your chances of loan approval but also helps you get better loan terms and interest rates. Stay informed, be disciplined in your financial habits, and regularly check your CIBIL score.