If you have a good business credit score, you have almost walked halfway through to get a business loan approval. Lenders like Non-Banking Financial Companies (NBFCs) assess your credit score before extending the loans. So whether you need finance for infrastructure, equipment, or daily workings, a good credit report will hold you in good stead for availing of 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. In addition, 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 balance must be low
You should aim for lower credit balances. The general rule of credit utilisation 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.
Additional Read: How to check CIBIL score free
Different credit companies have different credit utilisation 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% of 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. Taking loans without repaying the earlier ones will hurt 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 shows signs of stability and reflects your suppliers or vendors' trust in your company.
The older your credit account, the greater is the positive impact on your credit score. Because if you close an old credit account, your credit history is lost, and its history cannot be included in calculating your credit score.
Additional Read: How to improve CIBIL score
Keep an eye on red flags
Reading your credit report is important to monitor the red flags and take remedial measures. Some of the red flags are:
- Negative consumer feedback
- Loan defaults bounced cheques
- High credit utilisation
- Negative cash flows
- Many credit accounts
Immediate resolution of these issues can improve the credit score of your company.
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