Your credit score reflects your credit habits to your bankers and therefore it is indeed important for you to be concerned about your credit score. As such, people are now getting aware of the importance to review their credit reports regularly. Even the regulator, SEBI, has acknowledged the need to regularly monitor the credit reports and thereby calls for one free report on an annual basis by the credit information bureaus. Reviewing your credit report indeed helps your diagnose your credit health. While your repayment record largely impacts your credit score, there are other matters impacting your credit score too.
Let us suppose that you have an option to take a secured loan for your business. However, at the same time, a new-age bank offers you a personal loan without any security at same terms, on the basis your income. You will indeed be inclined towards opting for an unsecured personal loan, but beware! This may result in adversely affecting your credit score.
A secured loan is a loan against which the bank has sufficient security against the funds lent to the borrower. Mortgage loans, Loan against Property (LAP) etc. are examples of secured loans. Similarly, personal loans and credit cards fall into the category of unsecured loans. An unsecured loan reflects a higher credit risk of lending the amount to you. More so, since the bank does not have any security to fall back upon, in case you default on the contractual repayment terms. This is why the higher ratio of unsecured loans in your credit profile adversely impacts your credit score.
Besides this, in a secured loan, banks only lend a certain amount determined by the market value of the security. Rest of the funds are invested by the borrower himself. Since the borrower’s money is also at stake, this results in higher tendency to pay. As such, better repayment habits translate into a better credit score.
Also, a healthy credit portfolio of secured and unsecured loans helps your credit score as it reflects better credit management at your end. Regular account history with continuing timely repayments improve your credit score since the banks perceive such borrowers as less-risky borrowers in terms of default.
With a better credit score, you will have access to various lenders for your business loans. Loan Frame helps you choose the best one amongst the various lenders and also negotiates for you for the best rates and loan amount for your needs. Loan Frame makes use of technology to help you connect to the right lender for your business loan needs. Start your loan application now.