Credit Score is a three digit number depicting credit worthiness. A good credit score shows a sound repayment history. There are four authorized credit bureaus in India, and the most popular credit score is the CIBIL score.
CIBIL score, often referred to as credit score, gives an idea on repayment of loans availed from banks and non-banking financial institutions (NBFCs). CIBIL score is based on various factors like the amount of loan availed, regularity of repayments, default, write-offs, settlement and so on. Higher the CIBIL score, better the chances of getting a loan sanctioned.
If your CIBIL score is high, then it is easier to obtain a business loan, as it shows a good track record of repayments. The CIBIL score ranges from 300 to 900, 300 being the least and 900 being the best. CIBIL score is crucial when you apply for a business loan. Generally, a CIBIL score of 750 and above is considered good.
Credit cards are sanctioned, based on credit scores. Credit Score makes the process easier and faster as it is an extremely important factor in the lending process.
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As mentioned earlier in the article, there are a lot of factors that are considered important, while calculating your CIBIL score. Most factors affecting your CIBIL score are in your hands, so you must do the right things to have a good CIBIL score.
Make Timely Repayments – This is one of the most critical factors affecting your credit score. Ensure that EMI payments are made well before the due date. Delayed payments lower your CIBIL score
Take Debt in Proportion – This doesn’t mean you must take more debt than what your business can handle. You must ensure that your debt does not exceed income. This is considered a red flag in your credit report.
Number of Loans – Avail loans only when there is a real need for it. Avoid submitting multiple loan applications as this lowers CIBIL score. Too many loan applications or rejected loan applications are considered negative. Having too many loans to handle increases the chances of missing a payment. Keep a track of your loans and ensure payments are made well within the due date.
Business Customers – A major factor that affects your credit score is the credit period offered to your customers. If repayments from customers are for a longer duration of time, then it can lead to a low credit score.
Closing Old Credit Lines – Long credit history with banks and NBFCs is considered a green signal. Hence, it’s advisable to keep your old credit accounts and credit cards open and use them wisely.
SEE ALSO: How to Maintain a Good CIBIL Score?
How to check CIBIL score? The process of checking your CIBIL score is quite easy and can be done anytime. To check your CIBIL score, you must log on to the official website of TransUnion CIBIL – www.cibil.com and get your credit report. As per the RBI norms, each individual is given one free credit report each year.
After logging on to the website, you would be prompted to enter certain details like name, address, PAN and so on. Once you enter these details and make a submission, your credit report will be generated and displayed.
You can also generate credit report offline. For this, you must mail the required documents to the CIBIL address. Once CIBIL approves your documents, they will mail a hardcopy of your credit report.
CIBIL Score and Report: It is one of the critical factors affecting loan approval. A good credit score and report is a green signal. Good credit score and report would mean faster processing of your loan application.
Employment Status: Apart from good credit report, lenders also check income flow and employment status. If you own a business, then you must furnish documents related to the income and revenue of the enterprise.
Account Details: If your business has loans cleared due to write-offs and settlements, then it is surely going to hamper your chances of getting a business loan.
Payment History: Lenders check for defaults and missed or delayed payments. If your repayment history has any of these, then it’s bad and getting a loan is difficult.
EMI to Income Ratio: Lenders look at the proportion of your current loans rather than your income. Your chances of loan approval reduce drastically if your overall EMIs are in excess of 50% of your monthly income
With SME and MSME loans being granted within an hour, the process of scrutinizing a loan application, gauging credit history, knowing more about the business can get difficult. This is when CIBIL score becomes extremely important.
Compare this to your board exams and then getting admission in a college. There are hundreds of applicants competing with you, all with different characteristics and qualities. In this case, it is impractical to interview all applicants. Therefore, the college has a cut-off, applicants scoring below the cut-off are not eligible to apply for the seat. This filters out a considerable number of applicants. The CIBIL score can be considered similar to a cutoff.
Some lenders have a cutoff, and your application is considered only if CIBIL score is in excess of this. As most lenders have automated the processing of business loans, it is necessary to have a good credit score to make it past the initial stages.
The application for business loan can be for inventory management or for expansion. Credit score determines whether the loan can be sanctioned or not. The same applies for Home Loan, Credit Card, Car Loan, and Personal Loan. Hence, your credit score is a vital factor in determining the fate of your loan application.
SEE ALSO: How To Get My Cibil Report Online?
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