Business Credit Score - Does it exist?


It is now well-known that the banks and NBFCs check your credit score before approving a home loan or extending a credit card. Did you know that Credit Scores are not limited only to Individual consumers? Businesses, just like individuals, are also assigned credit scores. 

The Company or Business Credit Score goes on to determine a company's credit worthiness – that is, its likelihood to pay back on loans. Like the credit report for individuals, a business credit report gives a snapshot of various credit facilities availed by the business and repayment history on each of these facilities to the bank.

BREAKING DOWN 'Business Credit Score' - Why is important for you?

If a company is looking to purchase an equipment on EMIs or take a working capital loan, one factor the lender such as a bank or a NBFC would take into consideration is the business's credit score and credit history. The lender would of course decide whether to approve credit or not, on many other factors as well such as business's revenues, it's profits, assets, and liabilities, the collateral value of the equipment it wanted to purchase with the loan proceeds etc.

The lender doesn't stop here. The bank goes beyond the business credit scores to check the promoter's (promoters') personal credit score. By checking personal credit report of the promoter(s), the bank would get to know how diligent the key decision maker (mostly promoter) of the business is managing his or her personal finances and how much loan outstanding the promoter has in personal capacity. This is more common in case of small businesses as the personal and business finances of small business owners are often closely intertwined.

Thus, it is very important for business owners to keep a track of both type of credit scores – business credit score of their business and their own personal credit scores.

What's inside your Business Credit Report?

Credit Bureaus like CRIF High Mark provide credit scores and credit reports not only for consumers but also for companies and businesses. The one for company is known as the Company Credit Report or Business Credit Report or Commercial Credit Report. It consists of details such as

About Business: Report gives information such as the nature of the business, address and related parties such as Promoters, Partners, Holding Company etc. It also gives a snapshot of the type of credit facilities availed and the present status of these facilities.

Credit Score: A credit score for your business to help you understand the creditworthiness of your business. This score is in the range of 300-900 as per guidelines laid out by RBI. A 700+ score indicates a good repayment track on the credit availed by your business.

Loan History: Details of each credit facility availed by your business currently or in the past are covered along with the repayment history over past 36 months on each of these facilities. This will also cover if your business has guaranteed any credit facility.

Past Searches: Details of all inquiries requested by a lender with CRIF against your Business in last 24 months are covered here. This indicates the number of times that your business has sought a new credit line from a lender.

Checking your Business Credit Score

You can get your CRIF Business Credit Report and Score in just 3 simple steps:

• Fill in your Business Details such as name of the business, PAN, address, name of authorized signatory, PAN of authorized signatory

• Secure pay for your report

• Upload your documents such as scanned copy of PAN, Address proof etc.

Your report will be sent to you within 7 working days upon successful verification of the shared documents.

The credit scores are fluid and can change over time. That's why creditors tend to assess your creditworthiness on a continual basis. You, as a business owner, are always on top of your company's financial information. Similarly, you should keep a check on your business credit scores & business credit reports at least once every six months. If you notice your business credit scores are lower than 700, you should focus on improving the credit score by making on-time payments and lowering the company's credit utilization ratio.

Whether you've just started a business or been in the game for years, building a strong credit profile is essential to get timely and sufficient finance to grow the business to stay competitive.

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Guest 
on 27 October 2018
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