Last updated: February 20th, 2020 5:11 PM

CIBIL Score for Business Loan Process

CIBIL or Credit Information Bureau Limited an Indian Credit Information Company that collects and maintains records of an individual/business payments pertaining to loans and credit cards. CIBIL based on various factors calculates a CIBIL score for all borrowers in the range 300-900. Higher CIBIL scores indicate a healthy loan repayment track record while a low CIBIL score indicates delays or defaults in repayments. Banks use CIBIL score for assessing bank loan applications. In this article, we look at ways to improve your CIBIL score to maximize the chances of loan approval.

Make Timely Repayments

Timely repayment track record is one of the biggest factors leading to a higher CIBIL score. If a business has any type of credit facility ranging from auto loans to credit cards to business loans, ensure that repayments are made as per the loan terms. Delayed payments can lead to lower CIBIL score. Hence, ensure that timely repayments are made.

Don't Max Out Credit Limits

Liquidity and access to funds are important for maintaining a healthy credit repayment track. Hence, to improve CIBIL score, ensure that the total credit utilized vs the sanctioned line of credit remains below 30 - 40%. Hence, if a credit card is sanctioned with a limit of Rs.10 lakhs, then it is important to maintain a balance due of less than Rs.3 lakhs and repay any outstanding balance in full within the billing cycle. Maxed out credit limits are viewed as indicators of lack of liquidity or poor financial management, leading to lower CIBIL scores.

Don't Over-leverage

Over-leveraging occurs when a borrower debits too much of amount when comparing to the income sources. Banks, while sanctioning loans look very carefully at the amount of debt already raised by the business against the income sources, reported historically. If there is no healthy buffer between the amount of debt servicing vs the income sources, then the business would over-leveraged, leading to higher credit risk and a lower CIBIL score.

Don't Apply for Loans Unnecessarily

The loan applications made by a business or individual are tracked by credit rating agencies like CIBIL as an indicator of credit health. Too many loan applications or rejected loan applications are viewed as a negative factor -  leading to lower CIBIL scores. Hence, apply only for loans that you are eligible for and plan to utilize. Do not provide your consent to run CIBIL credit check for loans that you do not plan to utilize.

Don't Close Old Credit Lines

Long credit relationships with banks and financial institutions are healthy practice. Hence, do not unnecessarily close old credit card limits or credit limits. Instead, keep the lines of credit open with minimal utilization to showcase responsible financial management.

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