To build and grow your business, you may need to take a loan. Taking a loan helps gather funds for your business’s financial needs, and for getting a loan, having a good credit score is very important. The approval of your business loan depends on your credit score, and lenders inspect that very carefully. Your credit score is what convinces a lender to take the risk of providing you with funds.
What is a good credit score?
A good credit score ranges from 300-850. And a cibil score above 700 is considered to be an excellent score. Before you work on maintaining a good credit score, you need to be aware of how credit scores are calculated.
Factors affecting your credit score?
Some factors that are considered in calculating a credit score are:
- Credit mix
- New credit
- Age of accounts
- Credit used
- Payment history
What is a payment history?
Your past habits influence your future patterns. So, your payment history is something that will significantly have an impact on your credit score. If you pay your bills and debts on time, your credit score will automatically increase. And if you don’t do so, it will bring your credit score down.
What is the credit utilization rate?
The total amount of debt divided by the full available credit is your credit utilization rate. It should be under 30 per cent to avoid any adverse effect on your credit score.
Age of accounts
Your old accounts provide more insight than your new data, which will help increase your credit score. So, even an old unused credit card should be kept and not cancelled to help with the credit score.
Changing and getting new credit cards, mortgage shopping, and financing of a car, all together at the same time will have a substantial negative impact on your credit score. One should always pre-plan and work through the process before going for significant purposes.
A mixture of different kinds of credits such as credit cards, mortgage, and other types of loans is essential for a good credit score, although it is not that important than the other factors.
- Keep a check on your credit report.
- Pay your debts, bills, or repayments on time along with full interest rate. You can keep a reminder for yourself every time you have to make a repayment.
- Don’t use your credit cards to its maximum limits. Just use it to pay for your outstanding payments. One should maintain its debt-to-credit ratio at 30 per cent or less than that.
- Do not close any of your accounts, whether old or new.
- Do not go for opening more than one account at the same time.
These are few points to keep in mind which will help you maintain a credit score of 800 or near it. These essential steps will help you increase your credit score in a short time, say just a few months. No matter how low your credit score is, you can always keep working on repairing your credit score.
Every business these days is becoming dependent on business loans and to make purchases or enhance their growth, maintaining a good credit score is something compulsorily necessary. A good credit score helps you get more benefits with less inconvenience.
And one can always take guidance to learn how to maintain, rebuild, or get a good credit rating. Your credit score can help you gain significant advantages and less repayment stress. Your Credit score makes a huge difference in your life, especially in your business. Banks and other financing companies often look through your credit score to be convinced that you are reliable for lending money. It assures them that you will make your loan repayments on time without any inconvenience.