Ways to Increase Your Small Business Credit Score

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Ways You Can Improve your Credit Score for a Small Business_WC

5 min 01 Mar 2023

Highlights:

Overview of Business Credit Score
Way to Improve Business Credit Score

A business credit score is a numerical representation of its creditworthiness and repayment capacity and a small business credit report is a detailed electronic summary of a business’ credit history. The credit score for small businesses is calculated by third-party credit rating agencies or credit information bureaus. Unlike personal credit scores that range between 300 and 900, small businesses’ credit rating varies between 0 and 100. Lenders consider 75 to be a good credit score for small businesses.

In the world of small businesses, it is important to have quick access to credit and lenders decide whether to extend credit to a specific small business based on their credit rating. Over the years, several surveys have been done to understand the impact of small business CIBIL reports and CIBIL scores on lenders’ decisions to lend funds to these businesses.

A small business credit report does not only determine whether the company will get credit but also determines the amount of credit the company will get as well as the terms and conditions of the loan. A business credit report also determines how easy it will be for them to get insurance as well as the insurance premiums they must pay. Further, most commercial landlords, these days, decide whether to rent their commercial premises to a business after checking the business' credit score.

In conclusion, a CIBIL score is important as it affects the loan terms for businesses. The question is how to improve the CIBIL score. Well, the process of improving a business’ CIBIL score is the same as the process of improving one’s personal CIBIL score. In this article, we share with our readers some simple tips on how to improve your CIBIL score.

How to Increase CIBIL Score?

The following are some ways you can increase your CIBIL score:

Always Pay Your Company’s Bills on Time

As in the case of an individual’s CIBIL score, a business credit score is also directly impacted by the business’ repayment history. In fact, the repayment history is the most significant factor that affects the credit score of a small business. Therefore, if you want to increase your CIBIL score, make it a point to clear all credit card bills and EMIs – set up reminders for due dates so that you don’t miss paying your bills on time. Further, do not let your cheques get bounced as this too affects a small business’ credit score negatively. Small businesses must clear all bills on time as this not only helps them build a good credit score but also allows them to build good relations with lenders and vendors.

Keep the Credit Utilisation Ratio on Your Business Cards Under 30%

The credit utilisation ratio is the ratio of credit used to credit available. Financial institutions do not view a high credit utilisation ratio favourably. Borrowers must try their best to maintain their business’ credit utilisation ratio under 30%. Paying only the minimum due on your credit cards decreases the credit utilisation ratio. Therefore, to increase the credit score small businesses must keep their credit utilisation ratio under 30% and try to clear the entire amount due and not just the minimum amount due each month.

Take a Small Business Loan and Clear EMIs on Time

If you have a new credit history, you can benefit from taking a small, short-tenure loan and paying it on time. Doing so will convince your lender of your ability to repay loans on time and this will not only help you build a strong credit history but also convince lenders to give you loans on better terms and conditions.

Apply for Loans Only When Absolutely Necessary

Whenever a small business applies for a loan with a lender, they send an enquiry to one of the credit information agencies to enquire about the small business' credit rating. Such enquiries get registered as hard enquiries. Too many hard enquiries show businesses to be credit-hungry and can impact their credit score negatively. Therefore, to improve the CIBIL score of your small business apply for credit only when you absolutely need it.

Also Read: Know All About the Ideal CIBIL Score for Business Loan

Do Not Close Old Loan Accounts

One of the factors that affects a business's credit score is the length of its credit history. The older a business’ credit history, the higher its credit score. Closing an old business loan account deletes your entire credit history, which in turn, impacts your business score negatively. Therefore, do not close old loan accounts.

Check Your Credit Report for Errors from Time to Time

Credit information bureaus or credit rating agencies assign credit scores based on the information provided by the lenders and the financial institutions that the company has worked with in the past. Sometimes, this information can be incorrect. This can cause a small business’s credit rating to decrease. Small businesses should, therefore, check their credit report from time to time for errors. If they see any error, they must report it immediately as rectifying errors may take time.

Final Words

To conclude, a small business's CIBIL score significantly impacts its ability to access credit and favourable loan terms. Maintaining timely bill payments, keeping credit utilisation below 30%, and monitoring credit reports for accuracy are some effective measures to improve a business's creditworthiness effectively.

Also Read: 7 Tips to Help You Improve Your CIBIL Score

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