Skip to main content

Good Credit Habits for a business, for a Strong CIBIL Rank

Blog banners - 30

The CIBIL Rank, also known as CMR, ranks MSMEs from 1 to 10 based on their credit worthiness – a rank of 1 being the best. This rank is part of the Company Credit Report (CCR), which gives detailed information on a company's credit profile. The CIBIL Rank is available for businesses with current credit exposure of up to Rs. 50 crores. Calculation of CIBIL Rank is done using past 24 months of business’s credit history, shared by various lenders. A healthy CIBIL Rank can help reduce the average time for credit sanctions, improving the chances for eligible MSMEs to access funds at better rates.

Let's examine the main factors that influence a business’s CIBIL Rank:

Repayment Behaviour: The Foundation of Trust

Repaying loans and credit on time is very important. Late EMI payments, overdue amounts, or defaults are among the factors that affect a company's CIBIL Rank. For example, Rakesh, who owns ABC Manufacturing, could see a drop in his company's rank when he missed a loan repayment. Here's how to maintain good repayment behaviour:

  • Set up automatic payments for recurring expenses to avoid missing due dates
  • Maintain a robust cash flow management system to ensure funds are available for repayments
  • Negotiate favourable payment terms with your clients to manage cash flow effectively
  • Create a financial calendar to track all loan payment deadlines and set reminders

Liquidity Profile: Balancing Growth and Stability

The rate at which a company uses its available credit lines is a key indicator of its liquidity profile. The following tips can help to maintain a healthy liquidity profile:

  • Monitor credit utilisation regularly and keep usage well within the available credit limit
  • Avoid maxing out credit lines and manage balances wisely
  • Consider requesting a credit limit increase if needs demand it but use the additional credit judiciously
  • Diversify funding sources to reduce reliance on a single type of credit

Firmographics: Building Long-Term Relationships

The firmographic characteristics of a business reflects its credit history. The length of time a company has maintained healthy credit behaviour and relationships with lenders is particularly reflective of the company’s repayment behaviour. Rakesh's long-term relationships and timely payments with multiple lenders significantly contributed to ABC Manufacturing's strong credit history.

 

Good credit Practices for MSMEs

Learning from Rakesh's experience, here are some best practices for maintaining a strong CIBIL Rank:

  • Regularly review the CIBIL Rank & Company Credit Report (CCR): Check the report regularly to catch and dispute inaccuracies promptly
  • Keep business information up to date: Ensure that the company's profile is accurate in all loan accounts and reflects the present status of the business
  • Use credit responsibly: Avoid multiple enquiries in a short period of time and manage existing credit lines effectively
  • Maintain financial discipline: Regularly monitor cash flow, manage expenses, and plan for financial contingencies
  • Seek professional advice: Consider consulting with financial experts or credit counsellors for tailored guidance

Managing a company's credit health requires discipline and foresight. Rakesh's journey not only demonstrates the importance of focusing on repayment behaviour and liquidity profile, but also helps him maintain his creditworthiness. By implementing these strategies and maintaining a proactive approach to credit management, MSMEs like ABC Manufacturing can maintain a healthy CIBIL Rank. Additionally, this improves business loan eligibility and increases the chances of securing better loan terms, fostering growth and stability. Learn more at https://www.cibil.com/company-credit-report

 

 

Stay credit-ready by monitoring your CIBIL Score & Report.

Disclaimer: The information posted on this blog (Information) is prepared by TransUnion CIBIL Limited (TU CIBIL). This Information is for generic informational purposes only and is meant for consumer education and awareness about credit scores, credit history and credit reporting. The Information posted on the blog does not constitute credit advice and the user will need to consider the same and take independent informed decisions . No part of this Information may be quoted out of context, distorted ,distributed, published and/ or reproduced in any form and manner whatsoever. Consumers are advised that the Credit Information Reports (CIRs) prepared by TU CIBIL are based on collation of information, substantially, provided by credit institutions who are members with TU CIBIL. TU CIBIL is not responsible and /or liable for errors and/or omissions caused by inaccurate or inadequate information submitted to it by credit institutions. TU CIBIL does not guarantee the adequacy or completeness of the Information and/or its suitability for any specific purpose nor is TU CIBIL responsible for any access or reliance on the Information. TU CIBIL expressly disclaims all such liability. Further, this Information is based on the data available with TU CIBIL at the time of publication and therefore may not be up-to-date.