How to Check and Improve CIBIL Credit Score for Business Loan?

How to Check and Improve CIBIL Score/Credit Score for Business Loan?

Banks and other financial institutions rely heavily on the CIBIL Transunion Score of a person to judge his/her creditworthiness, based on which the credit is disbursed to the borrower. The score typically ranges between 300 to a higher limit of 900. A score that is high on the scale indicates higher chances of your loan application getting accepted. On the other hand, a low score signifies a poor history which includes delayed/defaulted credit repayments, thus the odds are against the loan/credit card application getting accepted.

This article is a comprehensive guide on how to check and improve CIBIL score for business loan.

Why is CIBIL Score/Credit Score Important?

CIBIL scores act as a parameter on which credit institutions check the borrower’s creditworthiness when he/she applies for a loan. Whether the institution sanctions the loan or not is determined by the individual’s CIBIL score. Any individual with a higher CIBIL score stands a fair chance of getting a higher amount of loan, longer tenure of repayment, better rates of interest and quick approval of the business loan.

Determinants of CIBIL Score

The factors which determine the CIBIL score of any individual are listed as below:

1. Credit history of the borrower:

The credit history of the borrower is given the highest weightage to in determining his/her CIBIL score. The behavior of the individual when dealing with debt obligations are taken note of. Thus, an individual who has a history of delay or defaults in debt payments will get a low CIBIL score. On the other hand, if the individual has been careful enough not to have defaulted on his/her debt repayments, the CIBIL score is likely to higher.

2. Credit mix and duration of the credit taken:

The proportion to which an individual’s portfolio consists of secured and unsecured loans determines one’s CIBIL score. In case the individual services long term debt correctly and responsibly, they shall rank higher with the credit score.

3. Multiple Loan Application:

Each time you apply for a credit from a bank or any other financial institution, the concerned agency runs an inquiry on your CIBIL report. Too many enquiries within a short span of time can impact ones CIBIL score negatively.

4. Credit Utilization Limit:

Having a high credit utilization limit shall not aid an individual’s CIBIL score as failure to maintain a low credit utilization limit over time reflects that the borrower cannot successfully mitigate the credit burden.

5. Other factors:

There are several other factors such as an increase in credit limit, not checking credit report, recent credit behaviors and credit exposure of the individual contributes to determining the credit score of the borrower.

Decoding Various CIBIL Scores

The table below neatly elaborates the CIBIL score ranges and what they mean for a borrower:

Score

Comment

Meaning

850-900

Excellent CIBIL Score No past history of delay or default in payment. Loan applications easily approved.

750-850

Above Average CIBIL Score Nearly 80% of the loan applications are most likely to be approved.

700-750

Average CIBIL Score The borrower may easily avail secured loans. The individual has to go through inspection from the bank to access his/her creditworthiness in when applying for an unsecured loan.

500-700

Below Average CIBIL Score The individual may have defaulted on his/her repayments. Personal loans would be a tough ask for anyone whose CIBIL score falls in this range.

300-500

Poor Credit Score Having a credit score in this range reflects various discrepancies in handling credit. It would be difficult for the individual to take up a credit from any bank/financial institution in the country unless the score is improved.

How to Check Your CIBIL Score/Credit Score?

You can check your CIBIL score/Credit Score online for free at any time by visiting the website page: https://www.cibil.com/freecibilscore. Create an account with the website by putting in your basic details such as username, password, email ID, and phone number. Then verify your identity by punching in your PAN Card and Aadhaar Card number. Once done, you shall receive a one-time password (OTP) on your smartphone that you will need to enter online, and you shall receive your CIBIL score report the next moment.

How to Improve the CIBIL Score/Credit Score?

A score that ranks higher on the range of CIBIL score is good enough for your loan applications to get approved easily. Additionally, the borrower gets benefits such as lower interest rate, more authority for negotiations, higher approval limits and exciting offers on credit.

Some methods which one may employ in order to improve their CIBIL score are as follows:

  • Defaulting on payments is a strict no-no. One must ensure to make the payments on time and avoid credit repayment defaults.
  • Lower credit usage helps with CIBIL score. The borrower must lower their credit usage to 50% of the limit.
  • Do not apply for multiple loans within a short span of time
  • Make sure your credit portfolio has the right credit mix. Use a perfect proportion of secured and unsecured loans to ensure the same.
  • Make sure your credit report reflects the correct information.

FAQs?

  1. How much time does it take for an individual’s CIBIL score to improve?

On an average, it may take between 4-12 months for the credit score to improve/change according to the borrower behaviors with recent credit.

  1. What is “NA” or “NH” in CIBIL Score?

NA or NH in relation to CIBIL score may signify that the borrower does not have enoughcredit history or there has been little to no credit activity in the last couple of months.

  1. Can I check my CIBIL Score for free?

Yes. There are various websites online which allow the borrower to check their CIBIL score for free.

  1. What are the additional benefits of having a high CIBIL score?

Landing a high CIBIL score shall indicate a higher borrowing limit, a lower rate of interest, more discounts on credit and various other benefits.

Read More:

Can Business Loan affect your Personal Credit Score?

Maintaining a Credit Score for a SME/MSME

Tips to Increase Your Small or Medium Business Credit Score

CIBIL Score for Business Loan – Check Minimum Credit Score

Minimum CIBIL Score for Business Loan

Businesses require huge amounts of money. Risk-taking entrepreneurs stake their lives and careers on the line to start companies. These businesses and the job opportunities they introduce to the economy are part of the economic lifecycle. Loans fuel such businesses and good loans with attractive interest rates enable people in business to engage in healthy economic trading. But not everyone is positioned to get good loans.

Business loans are available for these risk-taking individuals, but many of them don’t even know where to start.

The Credit Information Bureau of India Limited, or CIBIL, is the oldest function of the Reserve Bank of India to disperse credit information to banks and financial institutions.

What are CIBIL scores and CIBIL ranks?

To assess the credibility of a person or business, the payment history of the individual or business is gauged and quantified into a 3 digit number known as the CIBIL score.

CIBIL Score

Meaning

850 to 900

Excellent score. Perfect score for loan approval.

750 to 850

80% chance of loan approval.

700 to 750

Good for secured loans. Unsecured loans may require more checks by the bank.

500 to 700

Personal loans may be difficult to get. Interest rates will be higher.

300 to 500

Close to impossible to obtain any loans.

Your CIBIL Company Credit Report, or CCR, is a record of payment history compiled from multiple institutions. These are regarded as reputational collaterals. For your CIBIL rank, it ranges from 1 to 10. The closer the score to 1, the better the probability of securing a loan. A score of 10 means a heaping pile of trouble. Bear in mind, a CIBIL score is applicable to individuals seeking loans. CCR is the term that is applicable to businesses seeking loans.

Now that you are familiar with what a CIBIL score for business loan and rank are, and where on its spectrum you would like to be, it is time to understand what brings down your score and what brings it up. Bringing up your CIBIL score for business loan.

Putting it simply, the better your history in dealing with past credits and loans, the better your CIBIL score for business loan will be.

What affects your CIBIL score?

You score has nothing whatsoever to do with the following:

  • Investment account information
  • Savings held in the past
  • Fixed deposit accounts
  • Trading accounts
  • Current account
  • Savings account
  • Investment accounts
  • Your education level
  • Your annual income
  • Your gender
  • Your race
  • Your ethnicity

Your score is ONLY considered based on the following:

Factor

Weightage

Your credit history

30% weightage

Utilization of credit

25% weightage
Credit duration and mix

25% weightage

Misc factors

25% weightage

The score generated by the TransUnion CIBIL authority is the only indicator of your score. Each credit bureau uses its own specialised scoring methodology that has nothing to do with CIBIL, so don’t be confused by multiple credit bureaus. The TransUnion CIBIL agency is the one you want.

How are scores checked?

Checking your score is important, and keeping up with your payment history will allow you to do that. However, there are times when checking can hurt your actual score! So how do you avoid this?

  • Soft checks
  • Hard checks

Soft inquiries do not hurt your score. Soft inquiries are when an enquiry is requested by:

  • Credit bureaus
  • Third party authorised institutes

An infinite amount of these checks are okay and do nothing to affect your score.

However, when a request is made by institutes such as:

  • Banks
  • Credit card companies
  • Various creditors

Your score undergoes damage. This is called a hard enquiry, and you must avoid them as much as possible.

However, please don’t worry if this seems too complicated. You are entitled to a free credit report annually by the TransUnion CIBIL authority, so make sure to keep that in mind. The first one is free, but you are charged for any further reports in a year.

There are no fast and easy shortcuts to this, however. Keep in mind that your financial behaviour for the duration of 6-12 months is analysed before arriving at your score. So the only way to improve your score is through actual perseverance, dedication and hard work.

How to improve your credit score?

Let’s explore some of the methods of improving your score.

1. Focus on your credit utilisation

Utilisation here means how much you use of the credit limit you have on your card. Surpassing 40% of your limit shows that you have a high need for credit and raises the possibility that this high usage of credit means possible defaulting in future. Get another card and spread out your credit utilisation. Never surpass 30% to be safe.  40% is the upper cutoff. The ones that don’t need money are often the ones that are granted money. Also, here you can take measures to increase your credit limit so that you will never surpass 30% as well.

2. Outstanding balance

Just paying the minimum is a terrible way to increase your score. Pay off the unpaid balance as soon as possible, and pay off the entire balance at that.

The facts that your balance is carrying over to the next month is an indicator that you are unable to pay your debts fully and on time, and this hurts your score. Do whatever you can to lawfully pay off the balance to see your numbers start improving. Seek assistance from benevolent friends and family and other resources you have.

3. New credit applications

For the next year, don’t apply for any new loans. Loan thirsty individuals are seen in a negative light. Each loan mandates a recheck of your CIBIL score, and this counts as a hard check. As discussed before, you want to avoid hard checks at all costs.

The Bottom Line:

So there you have it. Bear in mind, even if you do happen to have a low score, don’t fret too much. You might still get a loan, albeit at a higher interest rate. These measures simply ensure you the best position to seek loans. Keeping these facts in mind will allow you to gain control over your CIBIL rank/score and allow you to nurture and grow your business into an indispensable part of the economy one day.

CIBIL Score for Business Loan FAQs:

1. What does NA or NH denote in my CIBIL score for business loan?

NA and NH signify that you might not have a credit history to be assigned a score. You either have no credit card activity in the past couple of years or are lacking credit card exposure.

2. Can CIBIL change or delete my records?

No. CIBIL does not have the power to delete your records on their own.

3. Is there a defaulter list for CIBIL?

CIBIL does not possess or maintain a list of defaulters.

4. What is CIBIL 2.0?

CIBIL 2.0 is the latest in measuring CIBIL scores. It has been created with changing industry trends in mind. Your scores in the 2.0 system varies from the scores given in the 1.0 system.

Read More:

Maintaining a Credit Score for a SME

Tips to Increase Your Small or Medium Business’s Credit Score