Introduction
A credit score is an indication of how likely you are as a business owner to receive a business loan, and it usually ranges between 300 and 900, which indicates how much you can be trusted and relied upon. If the score is below 600, then the credit is usually poor and difficult to obtain a business loan. But if the score is 750 or more, then the credit is strong, which makes loans easier to approve, the credit limit is higher, and interest rates are lower.
However, some habits could severely damage your credit score in a very short time. This would limit financial opportunities and increase the cost of borrowing. Therefore, it’s important to know and avoid common credit-damaging habits to maintain your credit score and get an online business loan hassle free.
How Significant is Your Credit Score?
Your credit score reveals the amount of trust that a lender could have upon you for decision making to lend or not to lend you money. A high credit score reflects that you manage your finances properly and pay your bills on time, making you a low-risk borrower. However, poor scores will signal a risk on the part of lenders and they take that advantage and charge a higher rate of interest, provide limited credits, or may even cancel your loan.
10 Worst Credit Habits To Avoid
Missed or late payments: A missed payment contributes to a poor payment history. Payment history accounts for more than three-fourths of your entire credit score, and your missing payments imply that maybe you are unreliable.
Using too much of your available credit: This is also referred to as a high credit utilization ratio. Using too much of your available credit is a red flag to lenders. Ideally, you should keep your credit usage below 30% of your credit limit. For instance, if you have a credit limit of ₹1,00,000, you should keep your spending below ₹30,000.
Application of Loans Frequently. Every time you apply for any sme loan or credit card, lenders will perform a hard inquiry. Too many inquiries within a short period can mean that you are experiencing instability in your finances and thereby decrease your credit score.
Not reviewing your credit report regularly: Errors in your credit report like inaccurate personal information, duplicate accounts, or unknown loans can all lower your score without you even noticing. You need to check your report and take action on it immediately.
Ignoring Unpaid Debts or Defaults: Leaving debts unpaid or in default may be highly destructive. This can actually get collection notices, acquire your assters and surely affect your credit score. So, it is advisable to resolve this by talking to your lender or through a practical repayment agreement.
Utilizing full Credit Cards limit: In case if you are using the full limit available in the credit cards, that shows that you are more dependent on your credit cards to fulfill your financial needs. This shows a bad impression towards you to the lender and also affects your credit score as well.
Close old credit accounts: Closing your old credit accounts early decreases the average age of your credit history, which will reduce your credit score. A longer credit history is always good as it gives an impression of a long record of responsible behavior.
Not Having Credit Mix: Lenders like to see a mix of credit types like credit cards, personal loans, and home loans. The lack of credit mix can suppress the growth of your score. Your score demonstrates you can manage various types of credit responsibly.
Over-borrowing or taking too many loans: Taking several loans, especially short-term loans, can easily bring your score down. This behavior is not only a bad habit that lowers your score due to increased debt but also shows financial stress to the lenders. Borrow only when necessary and pay off one loan on EMI basis before taking another.
Paying Loans Partially: Not fully settling a loan means you pay less than the total amount due; lenders do not like this. Your report will have a “settled” status, showing that you did not pay in full. This also negatively affects your credit score for several years. You should try to pay your debts in full, although it may take longer.
Conclusion
A good credit score is very important for a healthy financial stability which helps you in getting business loans easily but, missed payments, too many credits, and loans in plenty will affect your credit score badly. You would need to frequently check reports to ensure no wrong reportage occurs.
NBFCs are turning out to be a favorite and preferred source for MSMEs, especially those business owners that are experiencing challenges for loans at the traditional banks. NBFCs offer faster processing, flexible documentation, and customized financial solutions, making them an ideal partner for MSMEs aiming for growth.
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