A credit score is an expression, usually numerical, based on a detailed analysis of the credit files of the concerned person or organisation. This score represents the creditworthiness of the said entity. It is majorly based on the person’s credit report, which contains information that is generally sourced from different credit bureaus.
A good credit score goes a long way in helping you to secure an easy business loan. Credit card companies and banks use these credit scores to evaluate and judge all potential risks that are present when they lend money to their consumers. This helps them to minimise their losses due to bad debts. They also use these scores for determining who is qualified to get a loan and at what credit limits and interest rates. This could be the difference between an easy business loan, a tough business loan, and no loan at all. This score also helps lenders decide which customer is most likely to bring in the highest revenues.
What is a CIBIL Score?
In India as well, if you have to get an easy business loan or a personal loan, you need to have a good credit score. There are four different companies licensed as credit information companies by the Reserve Bank of India. The Credit Information Bureau (India) Limited (CIBIL) has been functioning as a Credit Information Company for India since January of 2001. The other three companies include CRIF High Mark, Equifax, and Experian, which were given the license to function as Credit Information Companies in India by the Reserve Bank of India in 2010.
Despite these four companies having developed different credit scores, the CIBIL credit score remains the most popular in India. The CIBIL credit score is a summary of the individual’s credit ratings and credit history summarised in a three-digit number. The score has a range of 300 to 900, with 900 being the best credit score you can get.
People who have no credit history possess a credit score of -1. If an individual has a credit history, but the history dates back to less than six months, their CIBIL score will be 0. To have a good CIBIL score for a business loan, there is a specific time requirement and effort to build up, and it usually requires a time of anywhere between 18 and 36 months of credit usage.
These months help to achieve a credit score, which is satisfactory enough to secure an easy business loan. Sometimes it may take more time than that as well. A good CIBIL score to avail loan will help in the long term.
Essential components of a CIBIL Report
Apart from your CIBIL credit score, your CIBIL report also contains various other details. The different essential sections are:
- CIBIL Score: As mentioned above, it contains your score, which is calculated based on your credit behaviour, ranges between 300 and 900. If your score is above 700, then it is a good sign of getting a business loan.
- Personal Information: It also contains your name, gender, date of birth, and identification numbers, like your voter’s number, passport number, and PAN.
- Contact Details:It includes your telephone numbers and address (a maximum of four addresses can be given).
- Employment Information:This involves the different income details (monthly and annual) as sent by the members (Banks and other Financial Institutions).
- Account Details:This section contains all the details of your credit behaviour including- name of your lenders, business account number, type of credit facilities, details of ownership, date opened, the actual amount of loan, current balance, date of the last payment, and month on month record for the last three years of your payments.
- Enquiry Information:Each application for a credit card or loan by you is reported to you by the bank or respective financial institution. Collected information is then noted down by the system in your credit history and is then referred to in the Enquiry section.
How to check your CIBIL Score?
As mentioned earlier, your CIBIL score is instrumental in deciding your qualifications for getting any loan of any sort, business or personal. Small businesses and start-ups especially need to maintain a good CIBIL score as this can seriously affect the amount of investment they get.
SMEs (Small and Medium-sized Enterprises)/ MSMEs (Micro Small and Medium Enterprises), traders, service enterprises, manufacturers, and businesswoman can all check their CIBIL score before applying for a business loan. If you are wondering how to know CIBIL score free, then here are the two ways:
Either you can visit the official site of CIBIL or any online finance lending company to get your credit report. The RBI guidelines that each individual can get a free check on their credit rating once every year. Once you have submitted a request for a credit check, you will have to offer the necessary documents for your identification and address proofs. If you have already checked your rating once, you will need to make a payment to CIBIL for generating your credit report once again.
You can get to know your score offline as well. You can visit the bureau for a check, or apply for the credit report via post. If you go to the bureau directly, you will have to carry all your documents with you. If you apply through the post, you will have to furnish the said documents. Once they are authenticated and verified, you will receive your credit score through mail as well.
Your CIBIL credit score is your getaway to easy business loan. It is proof that consolidates your reputation as a good consumer who pays his/her loans on time. If you have a good enough CIBIL score, securing loans and credit become tremendously easy, with the other easy-to-meet criteria of eligibility. You also increase your chances of getting loans at lesser rates of interest, a higher amount of credit, more extended period to repay that loan, and quicker approval time for your investments. Hence, it is paramount to maintain a good CIBIL score for loan purpose.