Moreover, any business might need working capital and at times might look for immediate fund requirements. This is where it becomes important to maintain a good credit score for SME or even big businesses.
The SME sector in India is growing at an incredible pace. It has more than 42 million small and big businesses, a whopping 95% of the total industrial units in India. Since it also employs a huge workforce, it is considered to be the backbone of the Indian economy.
Here are ways to maintain a good credit score for SME:
- Make your payments on time: The repayment history of any individual or business determines most of your credit score. When approving a loan, the lenders assess your repayment history in order to check if you make your payments on time. It is therefore essential to make your payments on time and maintain a good repayment history.
- Update your business information regularly: Another way to maintain a good credit score for SME is by updating your business information regularly. This is essential because when lenders check your creditworthiness, it is important that the report reflects the right information regarding bank statements, the size of the company, balance sheets, and others.
- Check your credit score on a regular basis: At times, lenders do not report to credit bureaus about the last payments or update payment being made on time. The best way to avoid this is by checking your credit score regularly and report irregularities if any. Moreover, this will enable businesses or individuals to understand the ways that help in improving the credit score.
- Ensure you have a good personal credit score: Although according to the law, professional and personal identities are distinct in businesses, one of the ways to maintain a good credit score for SME is to maintain a good credit score individually.
- Keep a track on your credit utilization ratio: It is important to keep track of your credit utilization ratio. Ideally, it is recommended that your debt should not exceed more than your income. To be precise, your debt should be 40 per cent of your income. The higher the credit utilization, the lower your credit score goes and reduces your future possibilities.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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