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

How to Get a Small Business Loan Without Collateral?

When starting a business or an organisation, funds are required, and for that loan is necessary. So it is important to get a business loan, but it requires some formalities. For getting loan some sort of security is given in order for a refund, but some loans require no collateral which we will discuss here. There are two kinds of loans; secured and unsecured. Some require an asset as security, and some do not. If one wants the loan for buying a home, then, in this case, your home acts as a collateral. But if one is looking for the loan that needs no collateral, then it requires some long process and time.

Some tips to get a business loan without collateral:

1. SBA Loans:

This loan is one of the most affordable loans that require no collateral but is the most popular loan option. These loans have some strict eligibility requirements and require some time to process, but this type of loan every businessperson should consider.

2. Online Term Loans:

These loans are of two types one is short term loans and then long-term loans. In long term loans, there is a set amount of advance payment done that the borrower can repay monthly with an extended period. They are not as much affordable as the SBA loans, but then also they are easier and take less time.

Short term loans are a little expensive and paid as daily or weekly payments over a short period. These are business loans without collateral that are popular.

3. Merchant Cash Advance:

This type of loan might seem to require collateral, but in this case, the financing company just purchases your future assets. In this type of loan, the company pays you to advance payment, and you have to pay back with some per cent of daily card sales. These are some sort of expensive financing option that one can find and get a loan for their organisation.

4. Business Credit Card

This loan option is everyone familiar with, and it is the supplement to traditional loan practice that one can take up for their business. It is with a 0% APR card and interest-free loan for some time.

5. Private Lenders and Small Firms

These are also the way to get a small business loan and may not require a collateral.

6. Opening a Franchise

You can open a franchise if you want a business loan because banks like to finance the franchise that has brand value, so this is one thing that one can do.

7. Some other ways to borrow loan without collateral:

If you don’t want to take the loan using the above methods, then there are many more ways by which one can take the loan without offering security or collateral.

Here are some tips:

1. Researching the market carefully

You can research the market carefully and then get the loan with some low-interest rate. Doing market research is very important, and it will surely help to find a way to get a business loan without collateral.

2. Improving credit score

It means to reduce your credit card balance and pay the supplier more, which will help you in getting a small business loan easily without requiring collateral.

Small Business Loan Without Collateral FAQs:

1. What are the documents required while applying for a business loan?

Some entities required are Photo ID like the pan card, address proof, last two years financial balance sheet, last six months bank statement, existing loan track record. But some additional documents may be required.

2. How to pay business loan repayment?

For this, the customer needs to give PDCs (Post-dated cheque) and sign an ECS in favour of the bank account.

3. What is the duration of the loan?

The duration of the loan can range from month to 3 years.

So obtaining an unsecured loan from a non-bank lender can be easy and fast but is expensive as compared to traditional bank rates. It is very important to meet the criteria for the bank loan. Some people who want long term loans spend lots of hours on preparing documents just to apply for a conventional loan for funding their business while some don’t like to spend time on this. It varies for all kinds of business owners and their way of the method.

Tips to Increase Your Small or Medium Business Credit Score

Poor credit rating is one of the foremost reasons for rejected business loan applications. In recent years, main stream banking sector has become increasingly wary of lending to small and medium businesses. A major factor behind this is the rise in non-performing assets (NPAs) marring the banking sector, which has made the banks risk-averse.

Nowadays, an SME needs to have an almost perfect credit score to secure a business loan. This in turn has given rise to FinTech finance, a smarter and more efficient way of financing small and medium businesses that relies on data-driven technologies for faster loan approvals. Yet, despite their lenient approach, FinTech lenders too, assign a certain weightage to the credit score of the borrowing company.

In this post, we are sharing some tips and advice that will help your firm improve its credit rating and get a business loan.

  • Credit rating is compiled from data of your past business and credit transactions. So, if there are cases of financial irregularities in your recent past, your credit rating is going to be lower. Another factor that is reflected by your credit rating is the way in which you utilize available credit, which includes the personal credit history of payments made to credit cards, utilities, loan EMIs and mortgages. If a bulk of your income is going into such payments and your bank balances are less than ideal, the credit rating suffers.
  • Now, improving your credit rating is a matter of setting these irregularities right. It is a time-consuming process so do not expect any miracles overnight. But by following strict financial discipline, you can regain a good credit score in a few months’ time. Refrain from applying for fresh loans when you are on the way to recovering your credit score because multiple credit searches by lenders may take away crucial points from your credit rating.
  • Another thing that might be affecting your business’s credit rating is wrong information uploaded by a financial institution, such as non-closure of a bank loan account that you have paid-up months ago. So, analyze your credit report carefully to identify wrong entries and raise a dispute with the rating bureau. These updates may take up to 30 days to reflect in your credit report so be patient.
  • If you find the above-mentioned discrepancies in your credit rating, be sure to check your credit rating with other rating bureaus to see if their records are also wrong.
  • Lastly, try and use the same address in all your business accounts to indicate legitimacy. Also, use landline numbers instead of mobile numbers as it indicates that you are a stable business establishment. Try paying more than the minimum monthly amount on your credit card loans, however, you may need to improve working capital flow for that. One way to do that is to apply for a small-ticket working capital loan when your credit rating improves to further consolidate your finances.
  • Once you get back to a good credit score, keep an eye on it and make sure you do not slip back into old financially imprudent habits again.