To obtain formal lending and meet your business objectives, having a great credit history is essential, regardless of whether you are a startup business owner or an established small- or medium-sized company aiming to grow.

The personal credit score and the business credit rank are the two criteria used to determine creditworthiness. These metrics are evaluated by lenders prior to loan approval. To determine your creditworthiness, they specifically look closely at your business credit record and the financial performance of the company. An MSME promoter or owner can obtain faster approvals, larger loans, and better interest rates by maintaining these.

Hence, understanding how to increase CIBIL score is very important. CIBIL stands for Credit Information Bureau, which is the organization responsible for providing the CIBIL score. This score is a numerical representation of the creditworthiness of a person based on credit history. The following strategies will help increase your CIBIL score:

1. Manage your outstanding debt

Credit card balances, term loans, and other credit lines are all liabilities on one’s credit report. The negative impact on an MSME's business credit score increases with the number of loans the company takes out. Lenders are hesitant to approve loans to businesses with high levels of outstanding debt. To improve credit scores, try to repay older loans as quickly as possible.

MSMEs that maintain low levels of business debt may also choose short-term business loans since getting one and paying it back on schedule shows the credit bureau that the applicant can manage credit responsibly.

2. Ensure lower credit utilization

Credit utilization ratio or rate can be calculated by dividing the amount you currently owe by your credit limit, typically expressed as a percentage.

Although the optimal credit utilization ratio may differ based on the credit bureau, it is generally advised by credit bureaus that the ratio stays below 30%. This indicates that if the ratio is more than thirty percent, lenders may conclude that you are struggling with money management. Generally speaking, a company's credit utilization percentage rises or falls in response to its purchases and payments.

It's also a good idea to pay back the loan before taking out any additional funds.

3. Frequently check your credit report

Monitoring the company's credit score on a regular basis is one of the most important things a business owner can do. This ensures that any error can be fixed as soon as possible.

Such monitoring is genuinely beneficial to business owners in a number of ways. Firstly, factual errors, such as those pertaining to contact information, can easily fixed by reporting them to the appropriate credit bureau. Furthermore, this could assist in identifying unusual or fraudulent transactions, identity theft or abuse of business-related information, changes in credit score and, therefore, loan eligibility, loan defaults, bounced checks, etc.

Lastly, regular monitoring will allow the company owner to take corrective action if the credit utilization is s close to or higher than the limit.

4. Long-term credit history means a trustworthy business borrower

Their credit history largely influences one's credit score. A company can establish its stability and vendor and supplier confidence by presenting an active credit account and a history of timely repayments. A business's credit score is more affected by the age of its credit account, particularly if the company has a lengthy history of good credit.

When seeking an MSME loan, understanding how to get MSME loan is crucial. It's also important to remember that applying for the same loan with different lenders may result in a lower credit score. Thus, while applying for a loan, any borrower—even one who has repaid a loan before—should limit the number of lenders they approach. It is best to apply to no more than two carefully chosen lenders, s, where you are certain that your application will be accepted.

Conclusion

Improving the CIBIL score is quite critical to having hassle-free MSME loans with good terms. Right knowledge on how to increase CIBIL score can be a surefire way to proactively manage credit. Taking advantage of your better credit profile would make you confident in navigating the lending landscape for empowering your business in the competitive market environment today.