Boost Your CIBIL Score for Business Loans – A Complete Guide

How to Check and Improve CIBIL Score/Credit Score for Business Loan?

Banks and other financial institutions rely heavily on the CIBIL Transunion Score of a person to judge his/her creditworthiness, based on which the credit is disbursed to the borrower. The score typically ranges between 300 to a higher limit of 900. A score that is high on the scale indicates higher chances of your loan application getting accepted. On the other hand, a low score signifies a poor history which includes delayed/defaulted credit repayments, thus the odds are against the loan/credit card application getting accepted.

This article is a comprehensive guide on how to check and improve CIBIL score for business loan.

Why is CIBIL Score/Credit Score Important?

CIBIL scores act as a parameter on which credit institutions check the borrower’s creditworthiness when he/she applies for a loan. Whether the institution sanctions the loan or not is determined by the individual’s CIBIL score. Any individual with a higher CIBIL score stands a fair chance of getting a higher amount of loan, longer tenure of repayment, better rates of interest and quick approval of the business loan.

Determinants of CIBIL Score

The factors which determine the CIBIL score of any individual are listed as below:

1. Credit history of the borrower:

The credit history of the borrower is given the highest weightage to in determining his/her CIBIL score. The behavior of the individual when dealing with debt obligations are taken note of. Thus, an individual who has a history of delay or defaults in debt payments will get a low CIBIL score. On the other hand, if the individual has been careful enough not to have defaulted on his/her debt repayments, the CIBIL score is likely to higher.

2. Credit mix and duration of the credit taken:

The proportion to which an individual’s portfolio consists of secured and unsecured loans determines one’s CIBIL score. In case the individual services long term debt correctly and responsibly, they shall rank higher with the credit score.

3. Multiple Loan Application:

Each time you apply for a credit from a bank or any other financial institution, the concerned agency runs an inquiry on your CIBIL report. Too many enquiries within a short span of time can impact ones CIBIL score negatively.

4. Credit Utilization Limit:

Having a high credit utilization limit shall not aid an individual’s CIBIL score as failure to maintain a low credit utilization limit over time reflects that the borrower cannot successfully mitigate the credit burden.

5. Other factors:

There are several other factors such as an increase in credit limit, not checking credit report, recent credit behaviors and credit exposure of the individual contributes to determining the credit score of the borrower.

Decoding Various CIBIL Scores

The table below neatly elaborates the CIBIL score ranges and what they mean for a borrower:

What is the Minimum CIBIL Score for Business Loan?

In India, a CIBIL score of around 700 is typically the minimum credit score required by most banks and non-banking financial companies (NBFCs) for approving business loans. This score acts as a benchmark for creditworthiness, ranging from 300 to 900. Applicants with scores below 650 may find it challenging to secure a loan, as lenders may view these scores as risky, leading to either loan rejection or higher interest rates. 

For MSMEs (Micro, Small, and Medium Enterprise), credit requirements can sometimes be more flexible, depending on the lender and the borrower’s financial stability. In such cases, while 700 remains a common standard, certain banks or financial institutions may approve loans for lower scores by compensating with additional eligibility requirements. 

How to Check Your CIBIL Score/Credit Score?

You can check your CIBIL score/Credit Score online for free at any time by visiting the website page: https://www.cibil.com/freecibilscore. Create an account with the website by putting in your basic details such as username, password, email ID, and phone number. Then verify your identity by punching in your PAN Card and Aadhaar Card number. Once done, you shall receive a one-time password (OTP) on your smartphone that you will need to enter online, and you shall receive your CIBIL score report the next moment.

How to Improve Your Credit Score?

A score that ranks higher on the range of CIBIL score is good enough for your loan applications to get approved easily. Additionally, the borrower gets benefits such as lower interest rate, more authority for negotiations, higher approval limits and exciting offers on credit.

Some methods which one may employ in order to improve their CIBIL score are as follows:

• Defaulting on payments is a strict no-no. One must ensure to make the payments on time and avoid credit repayment defaults.
• Lower credit usage helps with CIBIL score. The borrower must lower their credit usage to 50% of the limit.
• Do not apply for multiple loans within a short span of time
• Make sure your credit portfolio has the right credit mix. Use a perfect proportion of secured and unsecured loans to ensure the same.
• Make sure your credit report reflects the correct information.

How Much Time Does it Take to Improve CIBIL Score?

Reaching the highest CIBIL score is a gradual process and it also depends on your current score. If your score is between 650 and 700, it can take you around 4 to 12 months to reach 750 or higher by maintaining consistent financial discipline. However, if your score is lower than 650, it may take more than a year to reach an acceptable level. 

The improvement timeline to reach better credit requires consistently making sound financial choices, maintaining low debt levels, and making timely payments. Keep in mind that boosting your score requires sustained effort over time as there are no quick fixes. 

What is NH CIBIL Score?

A score marked as “NH” (No History) in your CIBIL report signifies that the credit bureau lacks sufficient data on your borrowing history. This can occur for several reasons:

• You have never taken credit, and thus no financial activity is recorded against your PAN. 
• There have been no recent credit transactions or use of credit cards. 
• There is minimal or no credit risk associated with your profile, especially if no financial products are used. 

An “NH” or “NA” designation is not typically reviewed negatively. However, some lenders may hesitate to grant loans to applicants without an established credit history. It is advisable for borrowers in this position to build a credit profile gradually. 

How to Improve Credit Score When it is NH?

If you are new to credit, you can start to build and increase CIBIL score to qualify for larger financial products over time. Here are some methods that can help your credit score business:

• Apply for a secured credit card: Secured credit cards are linked to a fixed deposit. It makes them easier to obtain for first-time borrowers. Responsible usage helps you build a credit history while keeping risks low for the bank. 

• Opt for a consumer durable loan: These loans are designed for purchasing household or business items like electronics and furniture. They are relatively easy to access for new borrowers and help establish a credit record through regular repayments reported to the credit bureaus. 

• Get a credit card from your existing bank: Your current bank may approve a credit card based on an existing relationship, such as a salary or business account. Banks are more likely to approve new credit products for customers with whom they already have financial dealings. 

Conclusion

Improving your CIBIL score is crucial for securing a business loan with favourable terms. By maintaining timely payments, reducing credit usage, and balancing your credit portfolio, you can significantly enhance your creditworthiness. Consistently monitoring your credit report and avoiding multiple loan applications are also effective strategies. To improve your business finances, you can depend on Lendingkart to access small business loans to consistently grow your business. 

FAQs?

1. How much time does it take for an individual’s CIBIL score to improve?

On an average, it may take between 4-12 months for the credit score to improve/change according to the borrower behaviors with recent credit.

2. What is “NA” or “NH” in CIBIL Score?

NA or NH in relation to CIBIL score may signify that the borrower does not have enoughcredit history or there has been little to no credit activity in the last couple of months.

3. Can I check my CIBIL Score for free?

Yes. There are various websites online which allow the borrower to check their CIBIL score for free.

4. What are the additional benefits of having a high CIBIL score?

Landing a high CIBIL score shall indicate a higher borrowing limit, a lower rate of interest, more discounts on credit and various other benefits.

Read More:

Can Business Loan affect your Personal Credit Score?

Maintaining a Credit Score for a SME/MSME