Small businesses are often an important source of employment, innovation, and economic growth. In many developing countries, small and medium enterprises (SMEs) make up a large share of registered businesses. In India, the SME sector is already growing at an incredible pace. Even so, only a few SMEs grow on to become larger businesses – a key reason being limited access to credit.
Having a good credit score significantly matters for SMEs to bag a business loan at a good interest rate. A high credit score dramatically increases your chances of getting credit, and your eligibility while applying for business loans, and other business credit. But as an SME yourself, how can you ensure a good credit score?
Here are 5 effective tips:
Make timely repayments
The single most important factor that determines creditworthiness is your ability to repay on time. That is why, it matters the most in credit score. Every payment record stays on your credit report for years, so you better be diligent in paying on time.
Limit your Credit Utilization
Credit Utilization is the extent to which you consume your credit limit. It impacts your credit score. Over utilization gives an impression that your business is facing a financial crunch. Hence, higher the credit utilization, the lower your score will go.
Make sure your lenders are reporting to the bureaus
At times, lenders can miss reporting to credit bureaus about the last payments or update payment being made on time. At other times, your lender may not be reporting to a particular bureau at all. The best way to avoid this is by first checking with your lender whether they report to your bureau.
Work on your personal credit score too
Even though individuals and businesses are considered separate entities, as an individual owner or a partner in your business, your credit score is still referred by lenders to understand your company’s payment pattern.
Check your credit score regularly
It is a good habit to keep checking your credit score every now and then. This keeps you informed about your status in the market and also helps you identify the steps you should take to improve it.
Achieving a good credit score is certainly not a one-time job – it’s a process. It requires some level of discipline and perseverance. By following the above advice, you will achieve a good credit score, but the point is to maintain it as well.