No business can run without funds as they are required in every step of business functions. Be it for the expansion of the existing business, buying new machinery, or even to payout to employees.
However, when your business falls short of the funds, you need to apply for short-term loans. What if your credit score or CIBIL score is bad?
Yes, your CIBIL score- a three-digit number, is critical when applying for a business loan. This score is not limited to be an eligibility part of easy business loans, but also when applying for a personal loan or home loan. As an applicant, you need to be very careful with your credit score.
If your credit history is not where it should be, then you need to work over it. Although it takes time to improve the score, but it does happen after some time.
A credit score between 300 and 900 is a good one and brings a higher chance of getting an easy business loan. Your credit score range may fluctuate year-by-year as the credit score range in 2018 may differ from the credit score in 2019.
There are many ways to improve the CIBIL score for a loan, and one way is through credit card. If you have been using a credit card, then you can adjust the score with the right steps.
Before we learn about steps on improving the CIBIL score through credit card, let us first know how to get CIBIL score calculated:
Credit History: One of the best ways to calculate the CIBIL score is through credit history. It carries the highest weight of 30% in your CIBIL score calculation. Finance companies send credit-related information to the credit bureaus.
The bureaus will then collate the information into your credit report to calculate the score. The credit report will also have the status of each account to know if the loan is settled, written off, or if there is any outstanding amount.
Credit Utilisation: Credit utilisation is how much you owe to lenders and how much loan you can take. It carries a weight of 25% to calculate the credit score. There are two things required to calculate the credit utilisation- your credit limit and how much loan you took.
There are other factors too that you can consider when calculating the credit score. The best way is to connect with a finance company that will help you in calculating the accurate credit score.
Let us now check how you can use a credit card to improve your CIBIL score
Make a Purchase using Cash: It is evident that when you have a credit card, every purchase you do is through the card. It is the tendency of every credit cardholder. This might be a feasible option, but it will have a significant effect on your CIBIL score if there is no timely repayments.
For instance, if you are holding a credit card and having a stable income. You decide to purchase airline tickets worth Rs 50,000 for a short holiday to Scandinavia.
However, your short trip ended up incurring huge losses to you and forcing you to use your credit card. This increases your credit card debt, leaving you to pay it off.
Furthermore, things may turn out sour when you lose your job and are not able to pay off monthly expenses and repaying the card amount.
In this situation, if you reach out to any lender or NBFCs for an urgent loan, then your application will be rejected.
With this example, it is advisable to create a proper budget and use cash instead of a credit card.
Use Card for Paying Regular Bills: The best way to use a credit card is to pay your regular bills. This includes internet bills, phone bills, or utility bills like water and electricity, which will also help you in building a positive credit history.
This will also help in making your good CIBIL score for a business loan. Using a credit card for bill payout will also help you to pay back quickly.
Making Repayments Habit: If you got a credit card debt, which is a huge amount, then you should strive to repay it at a minimum amount every month. To lenders, this will be a good sign because it shows that you have the habit to pay back the loan on a timely basis.
Always keep in mind, paying off as much of your credit card debt can increase your CIBIL score within no time.
Always Treat Credit Card as Debit: One of the potential dangers of using a credit card is the balance of your account does not change whenever you may purchase. This will create an issue of not having the track on your spending.
Whether you are using a credit or debit card, make sure to keep an eye on your spending. The more focused you are; the easier it will be to carry out the balance and pay high interest.
Factors affecting Credit Score
When you make late payments: Your payment history is the primary factor that can affect your credit score. If you have been making late payments, then it will result in dropping off your credit score.
Even though you might be doing regular payments, but if one missed, the payment could affect your CIBIL score progress.
Using only one Type of Credit: The credit mix is the next factor affecting your CIBIL score. The credit bureau will see the evidence that you can manage different credit types.
Student loans, mortgages, and auto loans carry fixed payment, but credit card represents revolving credit taking variable payments.
You keep applying New Credit Products: When you apply for new credit cards, the finance company conducts inquiries. There are two types of inquiries- soft Inquiry and hard Inquiry.
The soft inquiry includes employment checks and self-checks. A hard inquiry is conducted when you apply for new credit, and the personnel would check your entire credit history. It is advisable to be prepared well for this inquiry.
Credit cardholders seeking business loans need to be well equipped with all the information on how they can use the card to improve the CIBIL score. ZipLoan is offering easy business loans along with other beneficial perks.
