What is CIBIL Score and What Effect Does it Have on Your Business

CIBIL score is basically a three digit numeric summary of your credit history. It is derived using the credit history found in the CIBIL Report. Also known as CIR, i.e. Credit Information Report, it is an individual’s credit payment history across different loan types and credit institutions over a period of time. A CIR does not contain details of your savings, investments, or fixed deposits. It has detailed information on the credit availed by you including home loans, automobile loans, credit cards, personal loans and overdraft facilities.

The following are some of the factors that affect CIBIL score for business loan:

●Repayment history

Clearing all bills and loan repayments before the due dates will have a positive impact on your CIBIL score. On the other hand, any missed payments or overdue payments reflect poorly on the score.

●Utilization of credit limits

These days, credit cards offer high limits and if you use this limit to the maximum point, it may negatively impact your CIBIL score, as it indicates an increased repayment burden.

●Debt servicing duration

An important factor in the calculation of CIBIL score is the amount of time you have been using credit.

●Higher percentage of credit cards or personal loans

An individual with more secured loans (home loan/auto loan) is more likely to have a positive score as compared to someone with more unsecured loans. As it is the most expensive form of credit, the higher the number of such loans, higher are the payments from them due to high interest rates.

●Credit applications

In today’s times, many people apply for multiple loans and credit cards. However, this should not be done thoughtlessly as it leads to a low CIBIL score. Credit institutions usually exert enough caution in cases where an individual has constantly applied for more credit and seems hungry for more.

It is important to note that NBFCs like Bajaj Finserv offer MSME and SME loans of an amount as high as Rs. 30 lakh at pretty low rates of interest. What’s more, these loans are processed in just 24 hours and by submitting only 2 documents. Be it a small or a medium business, this amount can be utilized for future growth and expansion. The CIBIL score of your firm is based on the credit behaviour as listed in the ‘Accounts’ and ‘Enquiries’ section of your CIR. By maintaining a good CIBIL score, you can enjoy several benefits when you apply for business loan or credit cards. The following are some of these benefits-

Quick and simplified loan procedures

Whenever you apply for a loan, your CIBIL score will determine whether or not the lender clears the loan application. If you have an excellent credit score, there will hardly be any challenges in getting a loan, as the leader will have absolute confidence in your repayment ability. Consequently, you can access the loan sooner, which means that you can instantly carry out business transactions that were dependent on the loan.

To get a higher loan amount and lower interest

Having a good credit score gives the impression to lenders that you pay the amount you borrow in a timely manner. As a result of this, you are likely to get a positive response from lending institutions when you apply for a big loan. What’s more, you can not only apply for a higher loan amount but also negotiate the rate of interest. Although you can get approvals for some loans even with an average credit score, the amount that you get will not be as high.

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