Maintaining a healthy MSME credit score is crucial for ensuring your business qualifies for loans at competitive interest rates. A strong credit score can also boost your chances of quick loan approval and enhance your business’s financial reputation. In this blog, we’ll explore 10 actionable tips that will help you improve and maintain your MSME credit score.
How to Increase Credit Score
A business credit score is a numerical measure of financial soundness, the manner in which a business pays and handles its debt. In the case of MSMEs, the score is critical in terms of loan eligibility and affordable interest rates. It depends on the positive payment history, credit utilisation, and period of credit history.
Wondering, “How to improve my credit score?” Fortunately, there are proven techniques that can help improve your score and attract better financial prospects. Let’s now look at 10 actionable tips to improve and maintain a healthy MSME credit score.
Top 10 Tips to Improve and Maintain Your MSME Credit Score
A strong MSME credit score is built through consistent financial discipline and smart credit decisions.
1. Make Timely Payments
The payment history is one of the biggest aspects that affect your credit score. Making on-time payments for credit card bills, personal loans, utility bills, or any other debt is important to have a good credit profile. Missing payments can lead to a drop in your CIBIL score, making it harder to access financing in the future.
Tip: An automated payment system can help you ensure that you will never miss a payment. And this will boost your credit history and credit score in general.
2. Monitor Your Credit Report Regularly
Reviewing your credit report is important to monitor your credit profile. Mistakes or inaccuracies in your credit report may adversely impact your credit rating. Regularly checking your credit report helps you spot issues early and fix them before they affect your credit score.
Tip: If you find any errors, raise a dispute with the credit bureaus as early as possible to get them corrected before they affect your credit rating.
3. Maintain Your Credit Utilisation Ratio
Your credit utilisation ratio plays a vital role in your credit score. Ideally, you should aim to use no more than 30% of your available total credit limit to maintain a healthy credit score. High credit utilisation may signal financial strain, which can negatively affect your ability to secure loans in the future.
Example: If your credit card limit is ₹10 Lakh, try to keep your credit utilisation below ₹3 Lakh to improve your credit score.
4. Avoid Multiple Loan Applications
Applying for multiple loans or credit cards in a short period can negatively impact your credit score. Each application results in a hard inquiry on your credit profile, which can lower your credit score. To avoid this, apply for loans only when necessary and when you’re confident in your eligibility.
5. Maintain a Healthy Credit Mix
A diverse range of credit types can help strengthen your credit profile. Having a mix of secured loans (e.g., Machinery Loan) and unsecured loans (e.g., Working Capital Loan) can significantly benefit your credit score. It demonstrates your ability to manage various types of credit responsibly.
Tip: Avoid relying only on credit card debt and short-term borrowings. A balanced credit mix will strengthen your financial reputation.
6. Clear Existing Debt
Clearing outstanding debt is an excellent way to improve your credit score. Paying off high-interest loans, such as credit card balances, reduces your credit utilisation ratio and improves your credit score.
If your business has accumulated too much outstanding debt, try to clear it as soon as possible. This frees up your credit limit and improves your overall financial standing.
7. Keep Personal and Business Credit Separate
Applying personal credit accounts to cover business-related expenses can negatively affect your personal credit score and your MSME credit score. It is recommended to acquire business loans or credit facilities that are specifically designed for business use. A good credit profile of your business is guaranteed by the creation of a distinct boundary between personal and business finances.
8. Timely Tax Filings
Timely GST and tax filings reflect strong financial discipline, which lenders value when assessing creditworthiness. Repeated delays may weaken lender confidence and reduce your chances of loan approval.
9. Build Strong Relationships with Lenders
Having a long-term, positive relationship with your lender can be beneficial when applying for loans. If you maintain a clean repayment track record, it’s easier to negotiate better terms and access financing at favourable rates. Also, strong relationships with financial institutions often lead to faster loan approvals.
10. Ensure Your MSME Credit Profile is Active
Ensure your MSMEs’ loans and credit facilities are reported to credit information bureaus such as CIBIL and CRIF. This allows your repayment history and disciplined financial habits to be accurately reflected in your credit report. This directly influences your credit score and improves your chances of favourable lending decisions.
Also Read: Is It Possible to Check CIBIL Score With an Aadhaar Card?
To Conclude
Maintaining and building a good credit score requires disciplined financial habits, responsible borrowing, and consistent, timely payments. By following the above-mentioned simple tips, you can easily strengthen your credit profile and keep outstanding debts under control.
Regularly reviewing your credit report with recognised credit bureaus helps you track your credit history. It also helps you avoid missed payments and improve your overall financial health. This ultimately increases your chances of faster loan approval and better interest rates from financial institutions.
Looking to strengthen your business finances? Apply for a Poonawalla Fincorp Business Loan to access flexible funding, affordable rates, and quick approvals. This will help you continue to build a healthy credit score.
FAQs
Does the age of credit accounts affect my credit score?
The age of your credit accounts shows lenders your credit history and efficiency in debt settlement. A longer credit history demonstrates stability, positively affecting your credit score. Adding family members as authorised users on long-standing credit accounts can also help them establish credit history while maintaining your positive credit profile.
What should I do if I have missed a payment and my credit score drops?
If you’ve missed a payment, make the payment as soon as possible. Consistently making timely payments will help rebuild your credit score over time.
Can a low credit score affect the ability to rent a business property?
Yes, a low credit score can reduce your chances of securing a business rental, as landlords often assess credit scores to evaluate financial reliability.
How can I improve my credit score without applying for more credit?
Focus on reducing credit card balances, making timely payments, and lowering your credit utilisation ratio to improve your credit score without applying for new credit.
What role do credit bureaus like CIBIL play in my credit score?
Credit bureaus like CIBIL track your credit history and generate your credit report and score, which lenders use to assess your creditworthiness.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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