What are the Factors Affecting Credit Score for a Business?
20 March, 2025
Synopsis
Business Loan approval depends on meeting the bank's eligibility criteria.
Your credit score is key to Business Loan eligibility and approval.
Credit history, utilisation ratio, history length, new credit, and credit mix affect your credit score.
Business Loan approval is crucial for ensuring your business has the financial resources to grow and succeed. The Loan approval chances depend on how effectively you meet the bank's eligibility criteria. Various factors make up the Loan eligibility criteria. Your credit score is one such factor.
Your credit score is a three-number rating of your creditworthiness. It ranges between 300 and 900 credit points. It is primarily based on your credit history.
Ideally, a credit score of 750+ is necessary for increasing your chances for Loan approval. A score above this increases your chances of receiving a more favourable Loan offer. This blog will explain factors affecting credit score which in turn impact your Business Loan.
What are the Factors Affecting Credit Score for a Business?
A business credit score is a numerical representation of a company's creditworthiness based on its financial history and behaviour. It helps lenders, suppliers and potential business partners assess the risk of working with the business. Similar to a personal credit score, a business credit score reflects how well the company manages its financial obligations, such as loans, credit cards, and trade credit.
Factors influencing a business credit score include:
Payment History
It tracks whether the business makes its payments on time for loans, credit cards, or vendor accounts. Timely payments show that the business is financially responsible, helping to boost its credit score.
Credit Utilisation
Credit utilisation measures the percentage of credit the business uses compared to the total credit available. This is often viewed as an indicator of how well the business is managing its finances. A low credit utilisation ratio (typically under 30%) suggests that the business is not overly reliant on credit, which is favourable for its credit score. High utilisation, on the other hand, may indicate that the business is taking on more debt than it can handle.
Length of Credit History
The length of time a business has been using credit is another crucial factor. A longer credit history provides more data points, allowing credit bureaus to more accurately assess the business’s financial behaviour and reliability.
Business Size and Industry
The size and nature of the business can also influence its credit score. Larger businesses with more established financials and stable revenue streams may be considered lower-risk borrowers, resulting in a higher credit score.
Number of Credit Inquiries
The number of credit inquiries a business makes can also impact its credit score. Each time a business applies for credit, lenders or financial institutions make a “hard inquiry” to assess its creditworthiness. Multiple hard inquiries in a short period can indicate financial instability
You need significant financing from time to time to keep running your business. Applying for a Business Loan is a reliable way to meet your financial requirements. HDFC Bank offers Collateral-Free Business Loans up to ₹ 50 Lakhs and, in select cases, up to ₹ 75 Lakhs. This allows you to manage your business's financial requirements without risking your assets.
So, apply for a Collateral-Free Business Loan with HDFC Bank right away!
Business Loan approval is necessary to ensure you have timely access to financing. Your Loan approval chances depend on how effectively you meet the bank's eligibility criteria. A credit score is one of the most important factors in Loan eligibility. You need a credit score of 650 credits or higher for Loan approval.
FAQs
Why is the credit score important for Business Loan approval?
Your credit score helps the bank establish your credibility as a borrower. A good credit score indicates you are a responsible borrower. The bank sees this as a positive sign and may approve your Business Loan request.
What are the basic eligibility criteria for Business Loans?
You must meet minimum age, business tenure, and revenue requirements to apply for a Business Loan. Click here to know the HDFC Bank Business Loan eligibility criteria.
What are the main factors that influence the credit score?
Factors affecting credit score: credit history, credit utilisation, length of credit history, new credit, and credit mix.
Are there any tools to help track and improve my credit score?
Check your credit score on the following websites: CIBIL, Experian, Equifax, and CRIF.
How often should I check my credit report to maintain a good score?
Checking your business credit report once every six months or a year is recommended.
What happens if my credit history has inconsistencies?
If your credit history has inconsistencies, they will negatively impact your credit score. However, you can always work towards rectifying the inconsistencies and improve your credit score.
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Business Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.
