Equifax®, CIBIL™, Experian, and HighMark™ are some of the popular credit bureaus in India that offer credit information reports and credit scores for businesses. To arrive at your credit score, credit bureaus consider several factors like the overall value of your debts, repayment of loans, length of credit history, etc.
The higher the numerical value of the score, the better is your capability of availing loans at competitive interest rates. Credit scores range from 300 to 900, and the recommended credit score range is 750 or above.
Whether you’re looking to expand your operations, invest in equipment or infrastructure, or improve the cash flow of your business, having a good credit score always helps. It not only improves your chances of loan eligibility, but also helps you enjoy reduced interest rates and better loan deals.
Now that you understand the importance of maintaining a high credit score for your business, let’s take a look at some of the top ways to improve the score.
6 Steps to Maintain a Good Business Credit Score
#1: Pay your Business’ Bills on Time
Repaying your loan EMIs and credit card bills on time is a crucial factor in improving your personal credit score. The same is true with business credit scores. Late payments negatively impact your credit score, which in turn, is detrimental when applying for a business loan, line of credit, or business credit card.
One of the best ways to improve your credit score is to pay your dues on time. Defaults or late EMI payments, bounced cheques push your credit score down. Paying the business’ bills on time not only improves your scores, but also helps you maintain good relationships with vendors and other creditors.
#2: Aim for Lower Credit Balances
A good practice is to ensure that the credit utilisation ratio of your business does not exceed 30%. Let’s say that you have availed an OD of Rs. 10 lakh from your bank. Ideally, you should not use more than 30% (Rs. 3 lakhs) of the available credit. For instance, if you have withdrawn Rs. 3 lakhs from the available OD limit, it’s a good practice to repay the borrowed amount before you make any further withdrawals.
When your credit utilisation ratio goes above 30%, your credit score starts falling down. Even if you have to withdraw a larger amount, your credit score can bounce back if you repay the debt on time.
*Note that the 30% credit utilisation ratio is only a benchmark. Different credit bureaus have varying parameters. For example, Equifax® marks credit utilisation ratios up to 50% as green. When the credit utilisation ratio goes beyond 75%, your account is red-flagged and your credit score takes a drastic hit.
#3: Keep Business Debt Levels Low
Credit card balances, term loans and other credit lines are all liabilities on your credit report. The more loans you take, the more negative is the effect on your business credit score. Lenders generally do not sanction loans to businesses that have plenty of outstanding debt. To improve your credit score, try to repay older loans, as quickly as possible.
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