Is Promoter’s Credit Score Important For A Loan For Business?

Your personal credit score is very different from the business credit score and usually does not affect each other. Both the scores are calculated on the basis of different sets of parameters that are followed by the RBI regulated credit bureaus like CRIF. The range is also very different from each other. If that makes you think that both the paths will never cross each other then here’s the answer to it, ‘NO’ that is not true especially if you own a small business.

For most small business owners, the need to build and maintain a good personal credit score never goes away. Although it’s true that some banks and lenders tend to weight the value of your personal score higher than others when they evaluate your business loan application, most lenders include a review of your personal credit score when they evaluate your business’ creditworthiness.

When you set up a business and create a certain corporate structure, you assume your identity and the identity of the business that is created will be different from one another. However, for a small business, the founder is often the face of the business. This means lenders would take a close look at your personal finances to arrive at a decision.

Why do you need a credit score?
Credit scores a three digit number calculated by credit bureaus like CRIF determines your financial stability and credibility. It ranges from 300 to 900 where below the 700 is considered to a bad credit score. It is used by banks to make a decision regarding a loan application or a credit card application. A bad credit score depicts your repayment irregularities and bad credit behaviour which leads to the refusal of loans and credit. A credit score is also used to determine the rate of interest where a good credit score can fetch you lower rates of interest while a bad one can give you a loan with high interest rates.

What is the difference between Personal and Business Credit Score?
Personal Credit Score is the credit score an individual has, showing his financial credibility. The parameters on which it is calculated are various financial activities including repayments, bill payments and maintaining credit accounts, mainly. Business Credit Score is the credit score that the business will have and some of the parameters on which the score is calculated are profits of the business, turnover of the business, financial activities of the business and many such details of the business that determines the credibility.

Types of Businesses where PCR can affect a business loan:

In company law, there is a concept of lifting or piercing the corporate veil. While it is used when cases of fraud and impropriety are being decided and where the rights, duties and liabilities of a company become the rights, duties and liabilities of its shareholders, lenders often decide to follow a similar path. It is seen in many cases lenders specifically want to know the track record of the business owner, thereby treating the company and the owner at an almost equal footing. So which forms of business does your personal score start impacting?

Sole Proprietorship: These are most vulnerable to damage due to proprietor’s low credit score. In a sole proprietorship, the business and the owner are the same. Here, the business and owner share one credit score.

Partnership Firms: When it comes to partnership firms, the credit score of all partners is checked. If things are not upto mark post credit checks then the loan could be available to the business at a higher rate. The business may or may not be able to afford costly debts and therefore this again becomes a reason that would impact the growth negatively.

Private Limited Companies: Banks check the credit background of all the directors of the company. When credit scores are not meeting lender’s standards, once again either the loan application can be rejected or the loan would be available at a higher rate of interest.

Quick trivia for the business owners who have just embarked on the journey towards expanding your business or starting something of your own, make sure your personal credit score is on point as it will help you get your funds from the banks and lenders. to know about the difference and how each score has its own way of coming together, read more on CRIF Blog about how to build and maintain personal and business credit score.

How Do Banks Assess Your Business’ Creditworthiness?

There are endless aspects that have to be looked into to build a business from scratch. Collecting capital to bearing the expenses and utilizing resources to its maximum potential needs constant on a regular basis. Once the business starts to pick up a pace there is a desire to expand the business for the better and often a financial help is all that you need to do so. Banks play an important role and a good business credit score is the added advantage to your business.

When a business applies for a loan, the bank follows a certain protocol when evaluating the application. One thing the bank uses is the 5 Cs (Capacity, Collateral, Capital, Character and Conditions) of credit analysis to evaluate the application for the loan. Banks are always on the look-out for creditworthy customers to lend to, each bank has its own criteria as to how they arrive at their lending decisions.

It is also important to make it right the first time around because; with every credit rejection your credit profile could be affected in a negative way. Business credit scores give entrepreneurs an idea about the required purchasing power to pursue their dreams, solve a customer need or to expand into other areas.Primary factors taken into consideration while being assessed by the banks before deciding your business’ creditworthiness are:

Detailed study of your business:
The banks do an extensive research about your business to evaluate the nature of the business and what future the business could end up with. A study on how the business has been running and for how long has it been existing in the marketing. A thorough check on the partners involved and the collateral connected to the business is also done to ensure the ability of the business.

Business Credit Score:
It is needless to say that a business credit score has to be above 750 to be on the good books of banks. It is essential to keep a regular check on your credit score and make sure that it does not fluctuate often. It often is the summary or a depiction of your creditworthiness and also gives a brief idea about repayment history of the credit that is already availed. A check on your credit score annually with a RBI regulated credit bureau like CRIF is an important step to maintain the creditworthiness of your business.

Past searches with the credit bureaus:
Your past searches with a Credit Bureau like CRIF will be recorded as the number of times you have attempted to get credit from the lenders which might not be a very positive thing to do when it comes to maintaining a good credit history.

Loan History:
The company’s loan history gives a clear picture of what credit behavior it has. It checks each loan that you have taken in the last 36 months with your repayment regularities and irregularities. The banks also keep a check on activities where your company has been the guarantor.

Banks could also ask for memorandums in the case of complexities that are present in the organizational or ownership structure. But the most important factor and which we cannot stress enough is the presence of a good credit history; especially for a business creditworthiness which depends on your business credit score provided by authorized credit bureaus like CRIF. Keep your business credit score on a check and you will have no hindrance in getting funds for the growth of your business!

Business Credit Score vs. Personal Credit Score

Personal Credit Score vs Business Credit Score, What’s the Difference?
Personal credit score and Business credit score are two different types of scores that show the financial ability. A personal credit score is the depiction of an individual’s credibility while a Business Credit Score is the representation of the business’s credibility. The scores are usually not linked with each other unless the business is a small sized business where the owner’s personal credit score influences too. Let us break down both the scores for you to understand it better.

What is Personal Credit Score?
Personal Credit Score is a three digit number ranging from 300 to 900 representing your financial ability and credibility. A credit score is primarily based on the credit report information that is sourced from RBI regulated credit bureaus like CRIF. The perfect credit score to get a better credit is 750 and above. Higher the score, higher is the credit limit for your credit card, lower are the interest rates and faster is the process of getting the loan as a good credit score is ideally the best way to know one’s financial habits. A score of 650 or lower will hamper your chances to get a credit from trusted financial institutes. Simplest ways to maintain and have a good credit score is to keep a check on your credit report, paying bills on time and being financially consistent and stable.

Who and What Determines Your Personal Credit Score?
Credit Bureaus like CRIF assign your creditworthiness a score, using variations of the CRIF Score algorithm.
Personal credit score is made of five key components:
● Payment history (35%)
● Amounts owed (30%)
● Length of credit history (15%)
● Credit mix (10%)
● New credit (10%)

Tips to Boost Your Personal Credit Score
● Since paying your lenders on time represents 35% of your credit score, sign up for automatic payments for all of your credit accounts.
● Adjust your due dates according to you by requesting the banks or lenders. You don’t have to settle for a due date that is poorly timed with your paycheck.
● Aim for a credit utilization ratio of 30%. Whenever it is possible, pay off your credit cards in full month after month. A credit utilization ratio of under 30% across all cards is a sign for lenders that you’re managing your credit responsibly.
● Handle new credit carefully as opening too many new credit accounts will depict a behaviour that shows instability and every time you open a new credit account your credit score takes a small hit.
● By closing your oldest account, you may dramatically reduce your length of credit history and negatively affect personal credit score.
● Every year you can check your credit score online with RBI regulated and trusted credit bureau like CRIF for free. Keeping a check on the credit score is a habit that you should instil to be aware when the score falls or when it should

Why does an Individual need a credit score?
To have a credit score is mandatory for an individual to make sure that his credibility is not questioned when he seeks credit from the financial institutions. Having a good credit score means escalated loan process, better interest rates, bigger credit limit and faster approvals on loan requests.

What is Business Credit Score?
A Business credit score is a numeric representation of your company’s creditworthiness. It ranges from 300 to 900 in India. The information on your business credit report is used to produce the score, and business lenders use it when they are considering your credit application to predict the financial stability and credit behaviour. A higher score means your business has a history of paying bills on time.

Who and What Determines Your Business Credit Score?
Credit Bureaus like CRIF take into consideration various factors while calculating and determining the credit score for your business. Key Components of the Business Credit Score are:
● The number of years in Business.
● Lines of Credit applied for past 9 months.
● New Lines of Credit opened
● Collections and Liens past 7 years
● On time payment history.

Tips to Boost Your Business Score:
● Check your credit report at all times to keep track of what has a negative and what has a positive effect on your credit score.
● Pay your bills on time to show stable credit behaviour.
● Decrease your credit utilization ratio for reflecting a good credit behaviour of the company.
● Make sure when you pay off the debts the negative account is deleted.
● Add positive payment experiences in the payment history of the business.
● If you have a small sized business then keep your personal credit score on a check too.

Why does your Business need Credit Score?
A business credit score helps in separating business from personal finances. During the application process, your underwriter will take a look at additional documentation, such as bank statements or business credit reports. Keeping your finances separate is important for two key reasons, tax deductions and preventing a creditor from having a stake in your personal assets to satisfy a debt.

What To Do When Interest Rate Goes Up?

As interest rates continue to rise, especially in the past few quarters, opting for a loan has become more and more difficult. According to financial services industry trends, the interest rate is only expected to rise further. In such times, the borrower needs to tighten their wallets and find out ways to reduce the impact. There are ways in which you can save a significant amount of money if only you be a little bit more vigil, well informed and proactive.

What can you do for Home loans?
There could be tough times ahead for home buyers since that is usually the largest loan one has. Many banks today are charging from 8.5% to 10% which is a far cry from a few years back when interest rates were as low as 6%. With such rates, your monthly EMIs won’t be affected but your total payable interest will certainly go up and the tenure of your loan. Following are just some of the key ways in which you can tackle this situation and save more than a few bucks!

1. Increase your EMI instead of tenure
Most of the lenders will extend the loan tenure instead of increasing the EMI itself. A smart borrower should increase the EMI and look out for a tenure deduction to save from paying more than what they had planned for.
For instance, let us take a look at the example below to have a more clear understanding

As you can see, when there is a hike in interest rate and the tenure increases, you end up paying ₹84,978/- more than your actual payable. However, if you only increase the EMI amount by a meagre ₹120/- you must pay only ₹21,294, which is much lesser than the amount you had to pay in case your tenure was increased. This is just an example and you can save depending on your requirement.

2. Pay off a goodly chunk
If you are able to, pay off the loan as much as possible to reduce your tenure. In this way, you will be saving a lot of excess money which would’ve been spent and will also relieve the mental burden. In the above example, you can pre-pay Rs 15000 and keep the EMI and tenure same, neutralizing the impact of interest rate hike. You may know that pre-payment on home loans do not elicit any charges.

3. Review how your interest rate is pegged
Over the years, RBI has issued guidelines to banks and housing finance companies to keep changing the pegging for home loan interest rates. You would have heard terms like PLR, Bank Rate and MCLR. MCLR is the latest reference for lending rate by banks, and it allows better benefits for consumers. Do ensure your home loan interest rate is now pegged to MCLR and not to Bank rate, if you have taken loan from a bank.

4. Switch your lender
As a final option you can also consider switching your lender. While changing lender could result in saving on total payable interest, you should also take into consideration other expenses such as processing charges and documentation fees. If you are saving more in Interest after the payment of a few thousands as processing fees, then that would be a good deal. However, if you are closer to the completion of your loan, it would not make much sense to peep into other schemes. While you’re at it, make sure that your credit score is not hampered or affected due to multiple inquiries.

Ways To Maintain Your Credit Score – An Infograhpic

If you need to maintain your credit score, it won’t happen overnight.Credit scores take into account years of past behavior you can find on your credit report, and not just your present actions. But there are some steps you can take now to start on the path to better credit, read our infographic to know more..

Benefits Of Having a Good Business Credit Score – An Infographic

Good credit is the lifeline of your business. Sure, it’s a must for obtaining funding for launching or expanding your business. But that’s only the beginning. Here are just a few of the many benefits of good business credit score.

 

Planning to buy that fridge, TV or mobile phone on EMI? 3 Tips to consider for Christmas shopping!

We are in the midst of the festive season and discounts are flashing everywhere you turn your face. As such, you would be tempted to buy that TV or fridge or phone you were ardently longing for, but couldn’t lay your hands on them considering the enormous price. “Not anymore!” — proclaims one of the advertises on a famous online e-commerce website. These concerns no longer exist because of the advent of EMI facilities on expensive online products.

EMI or Easy Monthly Installment actually feels like it was invented keeping the Indian customers in mind. With festivals dotting the Indian calendar all around the year, and a prosperous population a.k.a. ‘Market’ to consume anything and everything the world has to offer, it just makes sense to make buying easier for buyers. This is especially true when you know they will be buying more this way. However, as a customer, you should always be cautious and clever when practicing this seemingly powerful facility to buy things beyond your capacity. Credit cards and EMIs while feasible could prove to be a big headache if dealt with clumsily. Here are a few tips you should remember whenever you plan to buy online, especially electronics on EMI:

Tip 1: Choose The Right EMI Option
When you are looking to buy a phone online on EMI with your Credit card, you have to be mindful of certain payments. While there is a good 12% to 18% interest rate on the EMI, some brands and banks even offer a 0% interest rate. Banks try to mitigate their losses by performing credit risk assessment before allocating you a loan. Most banks such as HDFC, SBI, ICICI etc. offer you with EMIs ranging from a period of 3 to 36 months.

Take the example of an iPhone X which is available at a discounted price of Rs. 79,999/- on Flipkart and which can be purchased using the EMI facility. Here, ICICI bank is offering multiple standard plans from 3 EMIs at 13% PA i.e. 27,247 p.m. to 36 EMIs at 14% PA i.e. 2,735 p.m. Also, you need to do the down payment along with a one-time processing fee (generally 0.5 to 1% of the total amount) and then pay the remaining amount in installments. Which means for an EMI of 3 Months, you will be paying a total of Rs. 81,741 i.e. Rs. 1,742/- extra while for an EMI of 36 months, you’ll end up paying Rs. 98,460/-, which is a whopping Rs. 18,461/- extra. This is an amount in which you can easily buy another decent smartphone.

If you are genuinely looking to buy something without the hassle of interest filled payments , then the best option is to look out for a‘0% interest EMI’ or ‘No cost EMI’. There are only a few banks which provide you with this option compared to the standard EMIs. Hence, you need to ensure your bank provides you with this facility so that you can avail its benefits. There is a certain one-time charge that they accrue though. But it is still a feasible option than standard EMI.

Let not the lure of paying less amount each month fool you into paying much more than the actual price. It is advisable to choose a moderate tenure of EMI where you can pay the monthly dues without much sweat while keeping the interest rates under control.

Tip 2: Buy Only The Essentials
Most e-commerce websites entice you with the option to buy expensive products online using Easy EMI options. The algorithm of the online websites is such that you will be searching for a TV, and a suggestion for a home theater will be displayed on the page end. You would be looking for a mobile phone, and a suggestion for covers and screen guard will pop up. All these fascinating offers are only good to bewitch you and make you spend more than you had initially planned. Whenever spending, you need to analyze and decide whether the amount you are willing to pay is congruent with your current financial situation and needs. Always remember that whether it be a TV or a fridge or a phone, it is just a product and not an asset. Hence, the value will only keep depreciating over its limited lifetime.

Tip 3: Pay Your Dues On Time
An EMI paid from a credit card is deducted wholly at one go. That means If you want to buy a TV worth 50,000, your credit limit should be at least 50,000 or more to deem you eligible. When you purchase anything on EMI, the whole amount is deducted from your credit amount and you are required to repay this amount in EMIs to your credit provider. Pay your dues on time and avoid defaulting. In this way, your credit score will also be maintained.

Hence, if you are planning to buy a TV, fridge or mobile phone this Christmas, always go for an EMI option which does not stretch your finances beyond limits. Keep your heads on your shoulders and do not get carried away in the festive fervor. We at CRIF hope you enjoy Christmas and keep your spirits & credit score high!

Went Overboard On Your Finances This Festive Season? 3 Ways to Come Out Of It

Diwali, Christmas and then New Year brought along with it a lot of celebration, jollification and merry making. The long holiday week saw a surge of people flooding the roads and skies, cross travelling between cities and countries. Gauging the streets filled with frantic shoppers, shopping it seems, has reached an all-time high. People are desperately trying to keep up with the lofty lifestyle of this generation. With all the glitter around you, you are compelled to believe that If you are not spending, you are not doing it right. Certainly then, all this subsistence comes with a price tag. Considering you too went a bit overboard on your spending this festive season, here are some tips to get you back from your financial guilt-trip.

1. Get rid of your credit card, well just temporarily
Do this right now. Hide your credit card and forget about its whereabouts for a month! Seriously, that’s the only immediate way to escape further debt. While we know this is not practically doable, but having a credit card handy post is like lingering around the forbidden fruit, one bite, and get ready to be kicked out of the garden. Resist the temptation if you don’t want to bleed your credit score further. You can use a debit card instead to avoid the risk of debt. Better still, is to use a digital wallet or withdraw the old fashioned cash from the ATM and spend the same. In this way, you have a limited resource to spend from which keeps you aware each time the amount is deducted. The point is to pause your credit card usage for a while until things settle down!

2. Instead of buying new stuff, sell or exchange old one
Instead of indulging in buying something new, learn the art of selling, recycling and reusing. There are quite a few unused things in every house which can be either reprocessed or sold off. With various online portals at your disposal, selling has become as easy as buying. Those items which lay unused occupying your space could be sold off for a goodly return and for good. If you are not among the ones to engage in the hassle of selling, then you may look out for exchange offers. There are offers on electronics and clothes where you can exchange old ones in return of a new one minus the value of the old.

3. Prioritize on clearing your debt
Stress on clearing your debt first. Maintain due diligence wherever possible. Even the seemingly trivial expenses such as having outside food and drinks, turning off your AC/lights, cutting down your car drives, avoiding using debit/credit card in place of cash, avoiding unnecessary purchase of things could collectively have a significant effect on your savings. In this way, you will be able to repay the monthly EMIs on time and pay at least the minimum due credit card amount. You will also learn some discipline and could even inculcate this as a habit thus helping you in the long run to improve your credit report.

Now that the festive season is over and the damage has been done, it is time for you to scrutinize your financial health. In India, you are entitled for free credit score from any of the four bureaus authorized by RBI. Credit scores can vary across the bureaus and an overall score of 700 and above is considered healthy for all.

Seth Godin, an American author says, “People do not buy goods & services. They buy relations, stories, and magic.” This quote indicates that our buying decisions are not completely based on rationality but are driven by some emotional impetus such as Love, Pride, Ego etc. We don’t just want to buy a utility, we want to buy a memory. Hence, while buying, we tend to prefer something expensive over useful in order to maintain our status.

The company you have while shopping also matters a lot as they influence your buying decisions more than you think. You only realize what you have purchased once you are in the ecosystem of your own house. Spare yourself this emotional atyachaar by keeping your head on your shoulders while shopping. If you comply with the above laws, you will soon find yourself out of this financial mess!

Learn To Be A Smart Borrower This Festive Season

This New Year, learn to be a smart borrower in the Super-hero way!

The susceptibility to become a spendthrift becomes more during the Christmas and New Year season. As the festivities are about to start, we are sure to buy gifts for loved ones, appliances for home and jewelry in abundance because of the irresistible offers that dominate the market. At this time of the season there are loans that people avail to buy expensive things. Often they throw caution to the wind to take advantage of a festive deal.

But does waiting for the festive offers to kick in so that you can save money make you smart? Are you really saving money? Is it a smart decision to splurge during the festive season? Let us break down the steps you should keep in your mind in the Superhero way while you decide your expenses this festive season.

With great festivals comes big expenditures!
It is essential to plan your shopping spree beforehand. As Batman said “with great power comes great responsibilities” so in a country where every festival is celebrated magnanimously it may get difficult to curb your expenditure. Don’t let the festive mood get the better of your financial judgment. It’s important to differentiate between what you need and what you want to avoid (impulsive shopping!).

Make a list of the things you are planning to buy based on affordability and try to stick to it. You should do a meticulous comparison of the available products and look for the best deals before you zero in on an item. Rein in your horses and take objective decisions.

This is my gift, my curse. Who am I? I’m Credit Score.
As Spider-Man accepted his powers as a gift, you should enhance your credit score and use it as gift too. Maintaining credit score is important and it is not unknown to anybody who handles finances on their own. If your credit score is 700 or above, then you are eligible to get a loan to fulfill your wishes. In case it is lower than 700 then you should mend it before it becomes a curse.

Your overall financial health is reflected in credit score and to make it better one must do payments and repayments on time, do a yearly check on the score and use credit in a wiser way. If you are looking for ways to ensure you keep your credit score, well above average, then don’t forget to read our blog,“7 Surefire Ways to Improve Your Credit Score”

Life doesn’t give us money, loans give us.
Getting a loan is easier now-a-days if you meet the eligibility and parameters like good credit score and report. Consumer durable loans are an amount of money lent to an individual for personal, family, or household purposes. Consumer loans are monitored by government regulatory agencies for their compliance with consumer protection regulations such as the Truth in Lending Act.

It is important to know whether you can pay of the loan that you take for buying or the amount that you are paying back does not have a vast difference with the principal amount of the loan. The super hero Flash says “Life doesn’t give us purpose. We give life purpose.” just the way loans work for consumers. Remember to take up a loan that has a considerably lower tenure but higher EMI, this eventually saves you money and gives better interest rates.

In a world of ordinary mortals, Discounts are a wonder woman.
As wonder woman says, “In a world of ordinary mortals, you are a wonder woman”, here the regular prices are ordinary mortals and the heavy discounts and offers are the wonder women while you buy your dreams. The festive season brings in best of offers and discounts, slashing out the price as low as possible. It is your duty to do your research thoroughly before you cash in on any offer.

As Superman say “I hear everything. You wrote that the world doesn’t need a savior, but every day I hear people crying for one”, CRIF is the super hero that helps you measure your credit score in the most accurate way so that you are financially aware and plan your expenses in such a way that you save more and spend less.

Why Do Banks Love To See The 750+ Mark On Your Credit Report?

When you apply for a loan of any kind, irrespective of your background or your ability to pay a lump-sum in your down payment, one important tool that helps the bank trust your ability and your intent to repay is a good credit score. Since the time credit bureaus have come into the picture, a credit report has become a financial bible for the banks.

A credit score is an aggregation of all your loans and credit cards. It reflects your creditworthiness and credit health. A score between 750 and 900 is the equivalent of an A/A+ on your school report card. It implies you’ve been very responsible with your credit, paying your EMIs and dues on time and in full each month. Even if you had a low score at one point, you’ve worked hard over time to reclaim a top spot on the credit score charts. In short, you’re very mindful and responsible when it comes to credit.

Your score also reveals that you’re a relatively safe bet when it comes to borrowing money from a lender or availing credit card facilities. According to credit bureaus, the lowest interest rates tend to go to borrowers with credit scores in the 750-900 range, which means your high score will also help you save money down the road. Besides these advantages, a 750 above score is also loved by banks. Below are the some of the reasons:

1. Judging your reliability becomes easier: The credit bureaus like CRIF are RBI regulated and for scoring an individual they employ sophisticated statistical analysis of your repayment performance on loans and credit cards listed in the credit report. A credit score takes into account many parameters, and helps bank predict future riskiness of a customer. The credit score thus becomes one of the major criteria for the bank.

2. Saves the bank a lot of time: The credit score is a sum of your loan repayment behavior so the bank saves a lot of time in analyzing how your credit behavior is or your ability to repay. The loan sanctioning process is simplified and is a lot faster. As a customer, you get your loan decisions fairly quickly.

3. Accuracy is on point: Initially, the traditional ways were adopted to verify an individual’s credibility which differed as the process depended on varied sources thus making the results volatile in nature. Since the time credit bureaus like CRIF have come into the financial world, the decisions have become more objective, data driven and also standardized. Therefore, the accuracy of the decisions have improved and also more dependable.

A good credit score is the magic wand that does the trick on banks when you apply for your loan to fulfil the most awaited dreams. The banks come across thousands of application for loans and the credit score helps them accept or reject applications in a more organized way and also quite quickly. A bad credit score can make you a risky bet while a strong credit score is encouraging to banks, ensuring you get the best deals out there, which saves you time, money and worry.