If you are a budding entrepreneur who is looking to start a company or already have a company that you are looking to scale up or expand then you definitely have to read this article.
To start off let me ask you a question – What is your credit score?
The reason this question was put forward was that your interest rate, loan amount and tenure eligibility largely depend on this score.
What is good credit score?
This score categorization may vary a little from bank to bank but generally any credit score below 700 means you are in trouble. You will be given very high interest rate and the loan amount approved for you will be less.
What are the factors that affect your credit score?
Payment history – The most important factor. How regular you are on your loan payments
Amounts owed – Having very high debts or maxing out credit cards with dues continuing for many months will have a negative impact on your score
Length of credit history – The longer the credit history, the higher the credit score
Credit mix – With different types of loans available CIBIL™, Equifax, Experian and CRIF High Mark needs a debt to determine your score
New credit – Taking out credits within short time increases your credit risk
Where can I get my credit score?
You can get your credit score for free from any of the major credit bureaus (CIBIL™, Equifax, Experian and CRIF High Mark). You are allowed one free credit report each year according to RBI regulations. You can also get your free credit score from CreditMantri.
Why does credit score affect my loan application?
However, a bank may market itself, it still likes reliable borrowers. They want people or organizations who will pay their due month on month on time. To know if you are that person they will check your credit report and credit score.
Your credit report contains all your credit history –
Have you taken loans before?
How did you go about completing it?
Did you miss any payments?
Are there any bad remarks on your report?
Do you have any other credit account active?
With so much information already available about you on your credit report banks will determine how dependable you are and decide on your loan plan.
Is credit score the only factor affecting my loan application?
Though credit score and report play a major role in your small business loan application there are other factors like
Type of business: Proprietorship, Partnership, Private Limited or Public Limited
Turnover of the business
Profit made by the business
Cash flow of the business
Track record of business
also play a major role in your loan approval.
How to improve or maintain a good credit score?
It is not something that can be achieved in a day. To have a good credit score you need to pay your debt on time. If you already have dues that are overdue try and close them at the earliest. Once all your overdues have been settled take a small loan and pay the dues on time. This way you will start to improve your credit score. Also have a mix of credit that is secured and unsecured which also helps in improving your score.