What is CIBIL?
CIBIL stands for Credit Information Bureau (India) Limited. It is one of the main organizations in India that provides credit reports and credit scores. CIBIL operates in partnership with TransUnion International.
CIBIL collects financial details from banks and other financial institutions, including information about loans and credit cards. This data is compiled into a Credit Information Report (CIR) and used to calculate individual credit scores.
What is CIBIL Score?
A CIBIL score is a three-digit number that ranges from 300 to 900. The lowest score is 300, and the highest is 900. This score shows how creditworthy a person is. A high CIBIL score indicates a strong credit history and timely repayment habits.
To calculate the CIBIL score, credit details from the last six months are analyzed. CIBIL gathers this information from banks, financial institutions, credit card companies, and other lenders. An algorithm processes this data, along with other factors, to determine the final score.
Credit Score on Business Loan Determination Factors
CIBIL uses a scoring model for determining credit score for businesses and individuals. The scoring model considers different determining factors to arrive at the credit score. Below is a breakdown of the credit score determining factors used by TransUnion CIBIL.
| Factors | Weightage |
| Payment History | 40% |
| Age and Credit Mix | 21% |
| Utilization | 20% |
| Balances | 11% |
| New Credit | 5% |
| Available Credit | 3% |
The score provided by TransUnion CIBIL is a reliable indicator of your creditworthiness. Each credit bureau has its own method for calculating scores, which may differ from CIBIL’s system. If you’re looking for the most recognized score, focus on the one generated by TransUnion CIBIL.
What is NH in CIBIL Score?
In CIBIL terms, NH or NOHIT means that a person doesn’t have any credit history. This indicates that there’s no past record of their credit behavior for the credit rating agencies to evaluate. As a result, their credit report will show a status of “No History” or “Not Available.”
Grow your MSME with collateral-free business loans
An NH or NOHIT CIBIL score doesn’t automatically mean you can’t get a loan. Even if you don’t have a credit history.
Lenders may still consider other factors to evaluate your eligibility:
- Income Stability: Having a steady, well-paying business can improve your chances. A regular income and long-term financial stability suggest you’re financially responsible, which can boost loan approval chances.
- Loan Type: Secured loans, which are backed by assets like property, are easier to get if you lack a credit history. Unsecured loans, however, may be harder to approve as there’s no collateral to reduce risk.
- Udyam Registration: For an MSME business, getting registered with udyam helps in formalization. The udyam registration certificate makes them recognized by business loan lenders like NBFCs and other financial institutions and increases their chance of getting an MSME Loan approved.
- Loan Amount: If you request a smaller loan relative to your income, it’s less risky for the lender and may be easier to approve. Larger loan amounts usually require a more established credit history.
- Guarantor or Co-signer: Having a co-signer or guarantor with a strong credit history can help your loan application. Their good credit score can offset your lack of credit history and reassure lenders about repayment.
How to Improve your Credit Score if you are an MSME?
Here are some ways for MSMEs to improve your CIBIL score:
- Manage your Credit Utilization: Credit utilization refers to how much of your available credit you’re using. If you use more than 40% of your credit limit, it suggests a high dependency on credit, which could signal future repayment issues. To stay safe, try to keep your utilization below 30%. You can also apply for another card to spread out your usage or request a higher credit limit to avoid crossing that 30% mark.
- Pay Off Outstanding Balances: Only making the minimum payment is not a good strategy for improving your score. It’s better to pay off your full balance as soon as possible. Carrying a balance over to the next month indicates you’re not paying off your debt fully, which can hurt your score. Pay off your bills and EMIs as quickly as you can.
- Avoid New Credit Applications: For the next year, refrain from applying for any new loans. Lenders view individuals/businesses who frequently apply for credit negatively. Each loan application triggers a hard inquiry on your CIBIL score, which can lower your score. It’s best to avoid hard checks as much as possible.
- Check Credit Report Regularly: Make it a practice to check your credit reports regularly as it can help you keep a track of your business’s credit score and see if there are any errors or inaccuracies, any errors found should be notified on time so that it doesn’t affect your credit score.
Conclusion
Remember, by staying on top of your credit management, you can strengthen your financial standing and take your business to new heights. Having a good CIBIL score certainly makes securing business loans easier and can lead to better loan terms.
However, at Kinara Capital, we understand that your journey may not always be a perfect score. We offer collateral-free business loans to help small businesses grow. We provide flexible financial solutions tailored to your needs. With Kinara Capital’s support and guidance, you’ll be able to achieve your business goals and become an integral part of the economy.
FAQs
1. What does NA or NH denote in my CIBIL score for business loan?
NA or NH in your CIBIL score means “No History” or “Not Available,” indicating a lack of prior credit activity. This typically applies to new borrowers or businesses without a credit record.
2. Is there a defaulter list for CIBIL?
CIBIL does not maintain a “defaulter list.” Instead, it provides credit reports that reflect an individual’s or business’s credit history, including defaults. Lenders use this information to assess creditworthiness when offering loans.
3. What is the minimum CIBIL score required to apply for a business loan in India?
The minimum CIBIL score required for a business loan in India varies from lender to lender and whether the loan is secured or unsecured, and the lender’s specific criteria.
4. Are there different CIBIL score requirements for different types of business loans?
Yes, CIBIL score requirements vary for different business loans. It is different based on whether the loan is secured or unsecured.
5. How can I improve my CIBIL score to qualify for a business loan?
To improve your CIBIL score, pay bills on time, reduce credit card utilization, clear outstanding debts, avoid multiple loan applications, and regularly check your credit report for errors to ensure accurate information.
