While applying for a business loan in a financial institute there are certain important eligibility criteria that one must follow. These criteria include age, profit, employer and also credit score. For verification of the data some documents required for business loan. 

What is a Credit Score?

A credit score is a number ranging between 300–850 that depicts the creditworthiness of a consumer. It is based on various financial factors like credit history: number of open accounts, total levels of debt, and repayment history, and more. The higher the score, the better a borrower looks to potential lenders.

Mistakes that can damage the credit score

For a business loan apply, you need to maintain a good credit score, so you must avoid the below-mentioned mistakes.

1. Make Late payments: Late payment is a habit that must be avoided at any cost to maintain a good credit score. If you have taken a loan in the past, makes sure that your EMIs are paid on time, and there is no outstanding bill on your business credit card.

2. Provide Guarantee for Someone Else’s Loan: Being a guarantor to someone can give a huge blow to your own business if the borrower does not pay the loan back. On defaulting the credit score of both the borrower and the guarantor is impacted.

3. Closing old credit cards: Your credit cards help build your credit history, closing any of them erases all the associated credit history from your report. It leads to a drop in your business credit score.

4. Not Checking your Credit Score and Credit Report: As s business owner, you must make it a habit to check your credit report periodically to ensure there are no discrepancies or errors. This will help you in avoiding any issue in the future.

5. Utilising the Entire Limit of your Business Credit Card(s) : Your credit utilisation ratio also impacts your credit score. The credit utilisation ratio is the ratio of the limit used to the available limit. Lower the utilisation higher your credit score. 

Conclusion

These are some mistakes that you must avoid at any cost to ensure that your loan application is not cancelled or delayed due to a low credit score.

Must Read: How to choose the best business loan for you