The majority of businesses rely on loans to expand and thrive. Having a good business credit score is crucial in helping you secure the best business loans of your choice.
A good business credit score ensures lenders of the creditworthiness of your business. The business credit score which forms part of the comprehensive credit report is a key indicator of the financial health of a business. So, every entrepreneur should know the key facts about their business credit scores which will ensure quick and hassle-free loans for their business.
Which are the leading credit bureaus in India?
Equifax®, CIBIL™ and Experian are the leading credit bureaus in India that provide credit information reports which includes credit scores both for individuals and businesses. Various key factors from your credit history like loan repayment schedule, overall debt, default history, etc are considered to evaluate your credit information and credit score.
The higher the credit score, the higher are the chances of loan availability for individuals and businesses. So, how do you build a good business credit score?
Six Factors to Build a Good Business Credit Score
1.Always repay your bills on time
The first criteria for having a good business credit score is repayment of your EMIs and credit card bills in a timely manner. Late payments have a negative impact on the business credit score, which could even lead to a low credit score and ultimate rejection of your potential loan application.
So, pay your bills on time and avoid any kind of defaults or late payment charges. A bounced cheque is also very likely to adversely impact your credit score so be very careful while issuing cheques. To ensure a good relationship with the lenders, prompt payment of bills is a key necessity.
- Low Credit Utilisation Ratio
The credit utilisation ratio is another key factor that impacts the business credit score. The golden rule of thumb is to maintain the credit utilisation ratio below 30% of the total available credit limit.
Any credit utilisation limit above this ratio tends to have a negative bearing on the financial health of your business making you a risky borrower. Any over utilisation of credit limit above the sanctioned benchmark leads to your account getting red-flagged resulting in a low business credit score.
3. Maintain Low Business Debt
A debt comprises credit card outstanding, loans and other related credit lines, all of which come under the purview of your credit report. Multiple debts tend to have an adverse impact on your business credit score as it shows the increasing risk appetite of the borrower. This may impede the business’s potential loan approvals by the lenders as they consider such borrower categories very risky of default. So, reduce your current debts as early as possible to improve your business credit score.
- Maintain Old Business Credit Cards
The business credit history has an integral role in determining your creditworthiness and the business credit score. Always try to maintain old business credit cards as it is associated with the business credit history. It shows the lenders how the business thrived over time with stability and trust of the various suppliers and vendors shown towards the business.
So, cancellation of such old business credit cards leads to erasing of the associated business credit history leading to a current lower business credit score. To minimise any negative impact on the business credit score, ensure that you maintain your old business credit cards. If you own several business credit cards which are difficult for you to track, then try and cancel the latest credit cards.
- Keep an eye on your Personal Credit Score As Well
Apart from the business credit score, while evaluating an entrepreneur’s credit score, lenders will also keep track of your personal credit score before approving any business loan. So, always ensure that you have proper separate financial records pertaining to your business and personal finances. For this, it is always prudent to have a separate business credit card for paying business expenses and a personal credit card for paying your personal expenses so as to maintain a proper business credit score.
6. Track Credit Report Periodically & Report Any Mistakes
One key consideration for ensuring a good business credit score is regular tracking of your credit report, checking for any discrepancies and getting the same rectified at the earliest. Even a small mistake like incorrect business particulars can adversely impact your business credit score. So, always ensure your business credit report is up to date to improve your chances of having a good business credit score.
Check your latest business credit score on Credit Mantri – the online loan portal by providing a few basic business details and get your latest credit report and credit score within a few minutes.