Most Indian business owners currently suffer from bad CIBIL scores, and due to lack of knowledge, they are unable to boost it. While applying for a credit card or a loan, a low CIBIL score can be an obstacle for you. Today, before granting loans to the applicants, lenders look into business CIBIL scores primarily. A good CIBIL score indicates that the individual is financially stable. A good CIBIL score does not mean that your credit activity is zero. In fact, low credit activity also sometimes results in a low CIBIL score. Hence, people just need to understand that a business credit score can be considered as the backbone of their financial stability. Common people should know the meaning and significance of the CIBIL score.
How To Improve CIBIL Score?
A CIBIL score is a 3-digit numerical presentation to signify your creditworthiness and the capability of repayment. Generally, the average rate of a CIBIL score ranges between 300-900. A score close to 900 is considered the best CIBIL score by Non-Banking Financial Companies (NBFC) and Financial Institutions. If you are a business owner and wondering about how to maintain your CIBIL score, then keep reading. We are explaining the best tips to increase your CIBIL score.
1. Make payments on time
Try to make payments on time. You should avoid late payments related to credit card EMIs or loans. These payments are directly related to the CIBIL score, and when your payment is delayed, it negatively impacts your CIBIL score. You should avoid late payments, and if you forget, then set monthly reminders in your task sheet.
2. Check your CIBIL report regularly
CIBIL report is the most crucial part that influences your credit score. You can do a CIBIL score calculation if you see any misinformation or inaccuracies in your credit score. In case there is any inconsistency for a name or address change that has not been updated, you can raise a question and get it resolved soon.
3. Never be Credit Hungry
Your credit-hungry behaviour can negatively affect your CIBIL score. Like earlier, you may avoid using too many credit cards to show your status symbol. Instead, you can use one or two credit cards with high credit limits and try to make their payments on time for the best CIBIL score. Also, if you have availed too many loans such as home loan, car loan, educational loan, personal loan, and more, it will badly impact your CIBIL report. You should never cross your limits of taking not more than two loans at a time.
4. Use your credit card within a limit
You should make sure not to cross a set limit of using your credit card every month. You should utilise only 30%-40% of the usage of credit cards every month. Always remember, it should not exceed 40%. Utilising the entire credit limit will have a negative impact on your business credit score.
5. Good Credit History
When you have a good credit history, such as taking a loan and repaying it on time, using a credit card from the last few years and making credit card payments on time, then you will have a good credit history compared to others who started using a credit card in the last few months. The customer in the latter case does not have a good credit history, and therefore his CIBIL score will be less compared to the customer who has been using it for years. So, a long duration of credit history helps to build a good business CIBIL score.
6. The balance between secured and unsecured loans
A home loan is considered a secured loan, so a home loan helps build a good business credit score. Personal loans, credit card debts, etc., are considered unsecured loans. If you have a higher amount of unsecured loan, then it shows that you are highly dependent on your credit card, and it will mess up your credit score. So, maintaining an 80-20 ratio like 80% secured loans and 20% unsecured loans is mandatory. When you maintain this balance, you will get the best CIBIL score.
7. Use high credit limits and keep a balance
Ask your banks for a high credit limit for business purposes and ensure that your utilisation is low. You may not notice any remarkable change instantly, but gradually your score will change based on your usage of the credit limit. If your credit limit utilisation is high, it indicates that your income is high and sufficient for your expenses.
8. Try to get a secured card
If you are a housewife or a student and want to start your business as an entrepreneur, try to get a secured card for good credit history. You may get a secured credit card against your bank’s fixed deposits. You can avail around 80% of the credit limit of the fixed deposit amount. You just have to remember that you should keep making your payments monthly on time, and then your business CIBIL score will increase within six months.
9. Opt for a loan for a longer period
Business owners always opt for loans. If you are planning to avail of a loan from a bank, then make sure you opt for it for a longer period. You just only remember to make repayments on time. If you avail of a loan for a longer period and make timely repayments, it will give a positive look and increase your CIBIL score.
10. Raise concern immediately for inaccurate reports
Sometimes, it is seen that business owners are facing inaccuracy in their CIBIL score calculation, as they use their cards for various purposes. If you notice errors such as loan closure, error in your financial account, due repayments, etc., then you should raise a dispute to the concerned lender or bank immediately. Then you need to show the proofs all you have against the inaccuracies.
We hope that our guide on how to increase CIBIL score turned out to be useful for you. A good CIBIL score indicates that you are financially strong, and you can bargain for a lower interest rate. And in that case, you will get the best offers and deals on your credit card. We have mentioned above the best tips by following which you may increase your CIBIL score. For a business owner, maintaining a good business credit score is very important to avail loans from any bank. A CIBIL score of more than 750 is considered as good. So, follow the above tips, make repayments on time, and get the best CIBIL score.
Q. How long is the CIBIL score valid?
Ans. There is no certain validity for the CIBIL score. This dynamic score varies on various parameters.
Q. How is the CIBIL score calculated?
Ans. A CIBIL score is calculated by the individual’s past performance on the debt obligations, duration of credit type and few other factors like credit utilisation, recent credit behaviour, etc.
Q. Does credit exposure affect my credit score?
Ans. Yes, credit exposure means credit utilisation and it affects your credit score. Ideally, you should use 30% of the credit card limit.
Q. Why should I check my CIBIL score?
Ans. You should check your CIBIL scores if you are applying for any type of loans such as home loan, car loan, personal loan, etc.
Q. Does my CIBIL score get affected if my income changes?
Ans. No, the CIBIL score will not get affected if your income changes.