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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

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