Your credit score is the mirror to your lenders in terms of your repayment habits and to some extent, your reliance on debts. Thus, it is important for you to have a good credit score. Reviewing your credit report indeed helps you understand your credit health but understanding what is impacting your credit score is also important.
Your credit score gets calculated on the basis of following:
- Repayment History – This is the prime factor impacting your credit score. A regular repayment history with no defaults will help you register a better credit score. Your credit report also provides the list with age-wise outstanding amounts of all kinds of loan accounts and credit cards held by you. Timely repayments and standard classification of your loan accounts will improve your credit score and banks & financial institutions etc. perceive you as a credit-worthy customer.
- Total Debt – Higher debt balances also affect your credit score. This is because higher debt may force you to take a new debt to repay the earlier one. Therefore banks enquire about your monthly disposable income/ free cash flows while appraising your business loan application.
- Credit Mix – Credit score also depends on current credit mix of the borrower. If your debt portfolio comprises of both secured loans and unsecured/ personal loans, it helps your credit score since it reflects a healthy debt management at your end.
- Usage of Credit Limit – Even when you are at a liberty to avail your full credit limit sanctioned by the bank in case of credit cards & other revolving credits, continuous usage of full/ almost full credit limits by the borrower is perceived adversely by the banks, as it suggests your reliance upon debt and external sources of finance.
- Credit Inquiries – Credit report also includes the details of loan inquiries made in the recent times. The credit information bureau records the inquiries made by banks for the borrower’s credit score. Repeated credit inquiries over a short span may get the banks to perceive reluctance of other banks to grant you loans.
With a better credit score, you will have access to various lenders for your business loans. Loan Frame helps you choose the right business loan and also negotiates the best interest rate and loan amount for your needs. We make use of technology to help you connect to the right lender for your business loan needs.