How to Maintain a Good Business Credit Score: The Key to Smooth Business Financing
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How to Maintain a Good Business Credit Score: The Key to Smooth Business Financing

  • Highlights

  • Have a steady and regular payment history on your bills

  • Aim for lower credit balances overall

  • Manage your company's debts efficiently

  • Refrain from cancelling old credit accounts

If you have a good business credit score, you have almost walked halfway through to getting a business loan approval. Lenders like Non-Banking Financial Companies (NBFCs) assess your credit score before extending the loans. Whether you need finance for infrastructure, equipment, or daily workings, a good credit report will hold you in good stead for availing business loans.

TransUnion CIBIL, Crisil, Equifax, Experian, CRIF High Mark are some of the credit bureaus that provide credit information reports (CIR) to businesses in India.

Let’s Explore How to Maintain a High Business Credit Score

Good Payment History

The credit report reflects your creditworthiness, and it helps the lenders decide the terms, conditions, and interest on which to give you a business loan.

The credit report records the credits taken, repayment of these loans, length of credit history, and the capability of repaying debt.
One of the ways to have a good payment history is to pay your dues in time. Any default, and cheque bounces will push your credit score lower. The CIBIL score ranges from 300 - 900, and the recommended range is 750 or more.

Credit Balances Should Be Low

You should aim for lower credit balances. The general rule of credit utilization is 30%. It means that if you have a credit line of Rs. 10 lakh, you should have tapped up to Rs. 3 lakh (at any given point) from the credit line. In case you repay, let’s say, Rs. 1 lakh, then you can again withdraw up to Rs. 1 lakh, without disturbing your credit score.
However, if you withdraw more than 30% from the credit line, your credit score starts a downward journey. Even if you have to withdraw a larger amount, you can increase the score by repaying the debt in time.
Different credit companies have different credit utilization norms. For Equifax, 50% of your total credit limit is flagged as green. Credit usage of 30% to 50% is signalled with an amber flag. More than 75% credit usage is red flagged.


Manage Your Company’s Debt

The liabilities on your credit report include credit lines, other term loans, and credit card balances. The more loans you take, without repaying the earlier ones, will have a negative effect on your credit score. Lenders are wary of highly indebted companies. Before applying for a new business loan, your company should have repaid the other pending debt. Managing the debt is important to keep your credit scores high.

Refrain from Cancelling Old Credit Accounts

NBFCs prefer long credit history as it helps them get a comprehensive view of your debt repaying capability. A credit account held for several years show signs of stability, and reflects the trust that your suppliers or vendors have in your company.
The older your credit account, greater is the positive impact on your credit score. If you close an old credit account, your credit history is lost, and its history cannot be included in the calculation of your credit score.

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Keep an Eye on Red Flags

Reviewing your credit report is important so that you can monitor the red flags, and take remedial measures. Some of the red flags are:
-Negative consumer feedback
-Loan defaults, bounced cheques
-High credit utilisation
-Write-offs
-Negative cash flows
-Many credit accounts

Immediate resolution of these issues can improve the credit score of your company.

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