Achieving your business goals becomes possible when your credit limit can accommodate the necessary sum of money needed. Hence, it pays to understand how your personal credit score affects your business loan eligibility.
It is important for financial institutions and lenders to protect their investments, especially when they are providing unsecured business loans without personal guarantees or financial guarantees. To do so, they use the credit histories of potential borrowers, documented on a credit bureau report, as a guide to determine their default risk and business loan eligibility. Hence, one of the best ways to secure a small business loan is to have a good credit score.
What Credit Score Do You Need For A Business Loan?
Your credit score in your credit bureau report reflects your creditworthiness, and it is gleaned from your credit history. Lenders use it to predict how well the borrower can pay the loan back and determine an individual’s default risk. The credit score also helps the lender decide on the credit limit and interest rates for a borrower. A better credit score may increase your credit limit, and decrease your interest rate. This is how your personal credit score in your credit report affects your business loan applications.
Hence, it is important to maintain a good credit score. Some of the best ways to do this are paying invoices on time, and maintaining small balances on your credit card. Being on top of your monthly payments, especially your credit card bills, opens the door to approval of your business loans, helping your company to grow.
How To Check Your Credit Score In Singapore?
To check your credit score in Singapore, purchase your CBS report from Credit Bureau Singapore (CBS). CBS maintains a consumer credit report of any individual based in Singapore. The numerical score ranges from 1000 to 2000 and measures the creditworthiness of the individual using information provided by various financial institutions that have had or currently have a relationship with the individual such as traditional banks and Singapore credit card companies. For example, the payment history of any mortgage loans or bank loans, such as the OCBC Home Loan, taken previously will be taken into account. The closer you are to 2000, the better your credit score and the lower your perceived default risk, so aim towards achieving a higher value.
Compared to financial institutions in Singapore, Poss’s business loans has simpler borrowing requirements. Complete your Quik application in 4 simple steps, with a few documents such as the CBS report, identity proof, notice of assessment, and bank statements.
What Are The Five Major Factors That Determines A Person’s Score?
1. Payment History (35%)
Your payment history is the largest component affecting your credit score. Your credit bureau report records how often you pay your bills on time and how many times payments have been missed. How far behind you are with your bills payment is a leading indicator of your debt repayment ability and your default risk, and credit scores will be negatively affected by any payments past the due date. Therefore, you should pay your debts on time to improve or maintain a good CBS report.
2. Outstanding Balances (30%)
This sum of money owed is compared against the credit limit made available to you by financial institutions. Circumstances like having maxed out credit cards coupled with high balances will lower your credit score, as it means poor financial management. In addition, a higher debt equates to a higher default risk. On the other hand, prompt repayment of loans and credit card bills will help improve your credit score as well as your business loan eligibility, as it implies good financial management.
3. Length Of Credit History (15%)
A longer credit history, with a record of timely payments, reflects positively on your creditworthiness, implying that you are a reliable borrower. Thus, it is good to keep your accounts open and active. You can do this by maintaining a low balance, so as to demonstrate your responsible credit management.
4. Types Of Accounts (10%)
The types of credit facilities you have would provide an insight into your spending needs and existing debt obligations. This includes motor vehicle loans, mortgage loans, and revolving credit facilities such as credit cards for your day-to-day expenses. It is important to opt for the appropriate credit facility for your purchases, as different types of accounts function differently.
Use a mortgage loan calculator to determine just how much your mortgage loan should be, and compare credit card benefits and interest rates on the Singsaver website to determine which credit card best suits your needs. This helps to maintain a good credit score on your credit report as your loan amounts will be kept to the minimum. It will also be more manageable to make timely repayment. Users can also use the Singsaver website to compare insurance and loans across different Singapore financial institutions.
5. Recent Credit Activity (10%)
Finally, recent credit activity implies the immediate need for financing. Therefore, it is not wise to open multiple accounts at the same time, as it suggests that you may have financial trouble in the future. Due to this, the credit scoring model will lower your credit score in your CBS report, thus increasing your perceived default risk in the eyes of lenders.
Tips For Improving Credit Score For Business Loan Approval?
Before you begin spending on your credit cards, take the time to understand the terms and conditions of each type of credit account, as well as any fees involved.
You should keep track of your accounts and history. Dispute any inaccuracies in your credit report to ensure it reflects your true creditworthiness.
Make sure to maintain a good relationship with your financial institution. Build positive trade references from vendors and suppliers who you’ve consistently paid on time. It is good to have a reliable financial support system, especially if you require business financing in the future. Remember that your CBS report potentially determines the success of your business loan applications.
Building a good credit score takes time and effort. By implementing sound financial management practices, you can increase your chances of securing a business loan or working capital loan with favourable terms. With simple borrowing requirements and transparent fees, you can obtain flexible business financing from us. Contact us for more information, and focus on effectively growing your business without any worries.
