All financial institutions study and make a decision about how much creditworthiness you have on the basis of your credit score. With any bad credit score, no one is eligible to draw a business loan or acquire any other kind of fund from a lender. So it is always important to hold a good credit score.
But in case you have defaulted on any EMIs to be paid and your credit score has been reduced, you can still apply and try some measures to enhance your credit score, and thus you will qualify for any future unsecured business loan or any financial aid from the lending parties.
What do you mean by Credit score?
Your 3-digit credit score represents your creditworthiness. Based on both the history, that is, borrowing and repayment habits, your credit score judges you.
Credit Information Bureaus mainly score the credit score in India from CIBIL, Experian, and Equifax. Of the three, the most common one used is the CIBIL score which is between 300 and 900. A score of above 750 is known as good and any score less than 600 is known to be bad and can raise a problem while having loans or credit cards.
Five major factors affect your credit score:
Payment History (35%) – Do you pay your bills on time?
Credit Utilization (30%) – How much available credit you’re using
Length of Credit History (15%) – How long you’ve had credit accounts
New Credit (10%) – How often you apply for new credit
Credit Mix (10%) – Variety of credit accounts you have.
In these areas, you will be able to improve your credit score within a short period of time.
Let’s now Understand How you can raise your Credit Score in 30 days.
1. Get Your Credit Report
A good credit score means first knowing where you stand. You can obtain a credit report from any of the three credit bureaus: CIBIL, Experian, and Equifax. In India, you are eligible to receive one free credit report per year. Check for mistakes in it wherein loan amounts are wrong or otherwise showing that payments have not been paid but are actually paid. Raise a complaint to the credit bureau and get it corrected.
2. Pay on Time:
Then, there is the timely payment, which accounts for 35%. Whenever you pay your bills, the date is considered a big factor in determining your credit score. Hence, ensure you make timely payments. Try to settle any pending payments as soon as possible. Establish reminders or automatic payments to avoid missing any due dates. Even one missed payment can hurt your score considerably.
3. Credit Utilization:
Lower Credit utilization is the percentage of available credit you use. Assume that you have a credit card with ₹1 lakh as its limit and you have spent ₹50,000. Your credit utilization would be 50%. You should try keeping credit utilization under 30%. For this, you need to reduce the credit card balance as much as you possibly can for that month. If you have multiple credit cards, pay off the ones with the highest utilization first. This is a simple step that can cause quick improvement in your score.
4. Do Not Apply for New Credit
Hard inquiry for every loan or credit card application. Many hard inquiries within a short period can decrease your score. So, keep trying for new credit in extreme needs only, when you are also making efforts to increase your score, like managing existing credit.
5. Boost Credit Limit
An easy way to decrease your credit usage is by raising your credit limit. If you qualify, you can ask your bank to increase the credit card limit. Do not go out there and spend money because the limit has increased. It aims to increase the credit limit while spending remains low.
6. Pay Off Small Loans
If you have small outstanding msme loan or credit card dues, pay them as soon as possible. All such settlements will help develop your credit score and allow you to manage several debts comfortably. Once the smaller debts are settled, you will find it relatively easier to handle bigger debts.
7. Control Your Credit Cards
If you are unable to track your spending on credit cards, then try to cut down your usage of them. Try to use cash or debit cards most of the time so that you can track everything easily. This way, you can avoid all unwanted debts and maintain a minimum credit utilization ratio that is good for your credit score.
8. Become an Authorized User
If the primary cardholder pays off the balance due in full and keeps the credit utilization very low, this will also add positivity to your credit score. Then again you would need to ensure that the person you want to be the primary cardholder is one responsible for his or her credit.
Conclusion
Managing one’s credit score is essential for financial stability. Steps like checking your reports, and making timely payments to lowering one’s credit score, can increase credit scores. Additionally maintaining a good credit score supports immediate loan eligibility as well.
For many MSMEs, NBFCs are a valuable resource for obtaining funds even when credit scores may not be optimal. NBFCs focus on business loans and, in comparison with usual banks, are more flexible, thus making it a good choice for any business that requires prompt and easy financing. With tailored products and services they are serving MSME owners better and faster.
