The first thing that any lender or potential investor is going to look at is the CIBIL score of your business. With your every financial decision recorded and available for later scrutiny, it becomes imperative to maintain a good CIBIL score by taking the right financial steps. One way to approach it is by applying for a business loan. Sounds counterintuitive, you might think. No so, really. When you take a loan, you open your credit history. And that certainly works in your favour. It is why it is good for your business to have debt. However, this comes with a caveat. You need to stay on top of your loan payments and ensure that you never slip up. Not even once.
Here’s how you can maintain a high CIBIL score even after taking an SME loan.
- Make your loan repayment on time
When you take an SME loan and make regular, timely payments, it shows up as responsible behaviour on your credit history.In many instances, timely repayment can also raise credit score. A missed loan payment, on the other hand, is a black mark, and will immediately bring your rating down. Treat your outstanding amount as priority and make your loan payment on time.
- Avoid taking a simultaneous loan
Every time you apply for a new SME loan, it impacts your credit score a bit. It might not seem like a big deal for one loan, but when you take multiple loans, the overall rating goes down. Also, having multiple loans running parallel reflects badly on your financial responsibility. Does this mean that you cannot take more than one loan? No, you definitely can apply for multiple loans, but ensure that you close your earlier credit account (on time and not earlier) before applying for a new one.
- Restrict the use of your credit cards
A credit card is an excellent method of maintaining a good credit score, but only if your usage is in control. Restrict the outstanding on your card to within 30% of the credit limit, whether you pay your outstanding on time or not. The balance on your card is reported to credit agencies when the statement for the cycle closes, and that is when it is the highest. It does not matter whether you clear your dues on or before the date; your credit score will get affected irrespective.
Having said that, don’t close old credit cards. An old credit card account, with a good payment history, looks good on your credit record. It even make sense to pay the annual fee (if any) to keep your credit history going back a long time.
- Keep your credit history stable
You must check your credit account at least once in six months to be aware of how you are performing. If your record has always been good, make sure it stays that way.
This means keeping your credit history stable. If you don’t spend more than 25% of your credit card limit, continue to do that. If you have been paying your loan on time, don’t miss any payment. If you have been holding 3 credit cards, do not cancel any nor apply for a new one. Also, do not consolidate cards, transfer loans or make prepayments on any loan.
Keep in mind these four simple and manageable ways and maintain a high CIBIL rating even with a loan.