As a small business, you might think building a robust business credit score is of less priority. You are already overworked with procuring supplies, creating brand awareness, marketing your products and services and whatnot and hence adding an extra task to your list is just too much. 

But what if you encounter a scenario where you need credit to meet your working capital needs or pay your suppliers? Getting your business loan sanctioned is challenging without a credit history or a decent credit score. For that reason, working on your credit score is necessary to help your business ensure untroubled credits from lending institutions. 

To know more about business credit scores, keep reading the article. 

What is Business Credit Score? 

A Business Credit Score is a score or number that defines a company’s financial health. It helps the lending institutions decide whether to process or decline the loan application of a company.

How is Business Credit Score Calculated?

The credit bureaus calculate the credit score based on the overview of the Business Credit Report that contains information about,

  • Ownership
  • Subsidiaries
  • Number of employees
  • Number of sales
  • Business registration detail
  • Credit history and collection
  • Legal or public filings
  • Summary of government activities
  • Operational data

Though the credit bureaus do not disclose the method they use to calculate the credit score, they assign an approximate weightage to the five major components mentioned below. 

  • Payment history: 35%
  • Amount owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Credit mix: 10%

Credit Bureaus in India

India has four credit bureaus, and the table below shows a comparative chart concerning business credit scores.  

ParticularsCIBILEquifaxExperianCRIF Highmark
Licence Granted2010
Scoring SystemScore Range: 300-900Ideal Credit Score: Above 750
Services (for Companies)Portfolio ManagementFraud ManagementCIBIL Bureau AnalyserCredit Information ReportFraud ManagementIndustry DiagnosticsEquifax Risk ScoreEquifax Alerts etc.Money RecoveryCustomer AcquisitionCustomer Management etc.Fraud ManagementCollection ManagementLoan Origination etc.
Time Taken to Process Credit ReportThe report is delivered instantly after the payment is made online.

How to Improve Your Business Credit Score?

To maintain a good credit score, you must follow specific criteria, which are pretty similar to the ones you do to keep a good personal credit score.

  1. Maintain Payment History

    Payment history majorly affects the creditworthiness of your business, and therefore, make sure that you repay all the credit taken within the tenor. Also, avoid cheque bounces and defaults as it would reduce your credit scores. 

    Pro Tip: Keep your business credit score more than 750.

  2. Keep Low Credit Balance

    To improve your business credit score, the thumb rule is to utilise 30 percent of the approved credit line. However, it may differ from lenders to lenders as some of them also consider 50 percent as a good score. 

    Suppose you have a credit line of INR 1 crore, then you must utilise 30 percent of it, which is INR 30 lakh, to balance your credit score. Now, if you repay INR 10 lakh, you can again withdraw up to INR 10 lakh later without hampering the credit score in the case of interest-only Flexi loans.

  3. Manage Debts and Liabilities

    Liabilities of a business includes approved Credit lines, Term loans, Flexi loans, Credit card balances, and other business loans. Applying for fresh loans without repaying the previous credit amounts would drag your credit score down. So, try to settle the old debts before applying for new loans. 

  4. Avoid Cancelling Old Credit Accounts

    SCBs and NBFCs prefer businesses with long credit histories to approve loans as it gives them a wide-angle view of their reliability. Having said that, if you close your old credit accounts, your entire credit history gets deleted and hence can not be traced while calculating your credit score. 

Benefits of Having a Good Business Credit Score

Now let’s discuss why having a good credit score is essential.

  1. Lower interest rates on business loans and credit cards: If you have a credit score above 750, you would be offered the best interest rate by the SCBs and NBFCs without even asking for it.
  1. Higher chances of loan and credit card approvals: With a good credit score, the chances of SCBs and NBFCs declining your loan applications also reduces. 
  1. Higher credit line: The borrowing power of a business depends entirely upon the credit score. And maintaining a good credit score means the lending institutions would willingly offer you more credit. 
  1. Better negotiating ability: Even after being offered the best interest rate, you can still bargain for an even lower interest rate if you maintain a good score. 
  1. More business opportunities: Business partners and suppliers also check your company’s credit score before coming into an agreement. Thus, a good credit score will open doors to new business deals.

A good credit score helps the lenders build trust in the company, which allows the company to receive credit at a competitive rate. Credit scores are not only required by the lenders but also by the business partners, suppliers, and landlords before making any deal. So, maintaining a good credit score from the beginning of your business journey is crucial for having a healthy credit history. 

Frequently Asked Questions 

How to check for a business credit score? 

For checking your business credit score, you need to reach out to any one of the credit bureaus. You can visit the official websites and request them for the credit score, which is, of course, a paid service.

What is a good business credit score as per the lending institutions?

Any score above 750 is considered to be a good business credit score.

What is the complete form of CIBIL score?

CIBIL stands for Credit Information Bureau India Limited.

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