How to Maintain Your Business Credit Score for Better Loan Approval

When business owners apply for business loans in India, lenders assess various factors to gauge the eligibility of the business before sanctioning the required credit. Business credit score is one of the most critical factors in this evaluation. Akin to your personal credit score, a business credit score sums up the financial health of your company, quantifying its ability to repay debt and manage its financial obligations. Credit bureaus like CIBIL, Equifax, and CRIF High Mark provide credit information reports (CIR) to businesses in India. 

Why Is Your Business Credit Score Important?

When applying for business loans in India, a good credit score can be instrumental in securing timely credit on favourable terms. A good credit score allows you to negotiate more flexible repayment terms with the lender to ensure repayments align with your cash flow. Since lenders are also more willing to lend to businesses with a good credit score, you can even secure the loan at a lower interest rate. Lastly, a good business credit score also ensures potent future borrowing opportunities for your businesses. 

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Easy Ways to Maintain Your Business Credit Score 

If you are about to apply for a business loan in India, you can implement the following strategies to boost and maintain a high business credit score for faster loan approvals:  

Make Timely Payments

Your business credit information report sums up all lines of credit availed and their corresponding repayment histories. Prioritising timely payments for all your business-related financial obligations like loan EMIs and credit card bills showcases responsible credit handling, improving your credit score. 

Maintain a Low Credit Utilisation Ratio

Credit utilisation ratio is the proportion of available credit you are currently using. The general thumb rule states capping credit utilisation up to a maximum of 30%. If you need to withdraw more than 30% of the credit limit, ensure that you repay the sum on time. Keeping your outstanding balances within the available credit limit helps lenders perceive the business as less risky, streamlining your eligibility for business loans in India. 

Manage Your Company’s Debt Efficiently 

Your business credit report sums up all the existing liabilities including term loans, credit card balances, and lines of credit to help lenders assess your repayment capacity and loan eligibility. If you are trying to improve your business credit score, prioritise repayment of existing loans before applying for fresh ones. 

Avoid Cancelling Old Credit Accounts

An easy way to ensure a good business credit score is refraining from cancelling old credit accounts. Closing an old credit account with a long history of timely payments and zero defaults can compromise your credit score. Once you close the account, this lengthy credit history is eliminated from your business’s credit report. 

Check Your Business Credit Report Periodically

Checking your business credit report periodically is a good credit practice that can help maintain a stable credit score and ensure faster approvals for business loans in India. By checking your business credit report periodically through business credit bureaus like CRIF High Mark you can monitor red flags like high credit utilisation, cheque bounces, and write-offs to take immediate remedial measures and avoid lowering your credit score.

Conclusion 

Whether you need a business loan for a new business venture or for expanding your current operations, your business credit score plays a vital role in determining your creditworthiness and loan eligibility. By implementing simple strategies like timely repayments, maintaining low credit balances, managing business debt efficiently, keeping old accounts open, and frequently checking your credit report, you can maintain a good business credit score.