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.

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:

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

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