Does your Credit Mix impact your Credit Score?

credit score

Your credit score reflects your credit habits to your bankers. It is indeed important for you to be concerned about it. As such, people are now getting aware of the importance to review their credit reports regularly. Even the regulator, SEBI, has acknowledged the need to regularly monitor the credit reports. It calls for one free report on an annual basis by the credit information bureaus. Reviewing your credit report indeed helps your diagnose your credit health. While your repayment record largely impacts your credit score, there are other matters impacting your it too.

Let us suppose that you have an option to take a secured loan for your business. However, at the same time, a new-age bank offers you a personal loan without any security at same terms, on the basis your income. You will indeed be inclined towards opting for an unsecured personal loan, but beware! This may result in adversely affecting your credit score.

A secured loan is a loan against which the bank has enough security against the funds lent to the borrower. Mortgage loans, Loan against Property (LAP) etc. are examples of secured loans. Similarly, personal loans and credit cards fall into the group of unsecured loans. An unsecured loan reflects a higher credit risk of lending the amount to you. More so, since the bank does not have any security to fall back upon, if you default on the contractual repayment terms. This is why the higher ratio of unsecured loans in your credit profile adversely impacts your credit score.

Besides this, in a secured loan, banks only lend a certain amount determined by the market value of the security. Rest of the funds are invested by the borrower himself. Since the borrower’s money is also at stake, this results in higher tendency to pay. As such, better repayment habits translate into a better credit score.

Also, a healthy credit portfolio of secured and unsecured loans helps your credit score as it reflects better credit management at your end. Regular account history with continuing timely repayments improve your it since the banks perceive such borrowers as less-risky borrowers in terms of default.

Here’s how You Can Improve Your Credit Score

Your credit score is the first thing your bank will check before judging you on other parameters like your salary, other loan obligations, your repayment capacity etc. So, a higher score should ideally help you get a loan at more favorable terms.

Recently, one of the leading public sector banks has linked the rate of interest to the credit score. Customers having a score higher than 760 will be charged 8.35%, those in the range of 725 to 759 points will be charged 8.85% while those having credit score below 724 points will be charged 9.35% on home loans. This spread of 1.00% indeed asks for a regular monitoring of your credit score and immediate corrective action in case of any misinformation stated therein. Other banks are also likely to follow in taking such a step.

Tips to Improve your Credit Score

Since your credit score impacts your loan taking capacity and your interest outgo, it becomes imperative for you to have a better score. Here are few measures through which you can improve your credit score:

  1. Timely Repayment of your EMIs/ Credit Card Dues– Repayment history is one of the prime factors determining your credit score. As such, one should always aim to pay off the credit card bills and monthly installments of your business loans / personal loans without any delay. Timely repaying habits translate into a higher credit score for you.
  2. Lesser number of Casual Loan/ Credit Card Inquiries – CIBIL records each time your credit report is pulled from their website. Credit report has a dedicated inquiry section. It lists all the loan inquiries made by you with any lender. This leads to a creation of the poor perception of being credit hungry, even while there may not be serious reasons for loan rejections.
  3. Lower Utilisation of the Credit Limits Sanctioned – Credit report not only reflects your repayment tendencies but also your debt management skills. If you are continuously using the full credit limits and more often paying just the minimum amount due, the credit score will get lower and is also viewed negatively by banks.

With a better credit score, you will have access to various lenders for your business loans. Loan Frame helps you choose the best one among the various lenders. Loan Frame makes use of technology to help you connect to the right lender for your business loan needs. Start your loan application now.

Have a look at other Finance related posts here.

About Loan Frame

Introduction to Loan Frame

Slow funding options hold back the growth of SME sector 

Small and Medium Enterprises (SMEs) are the growth drivers of socio-economic development in the country. There are nearly 51 million small businesses in India that make up for 45% of the country’s manufacturing output and roughly 9% to the country’s GDP. However, a major constraint in the growth of SME sector has been lack of easy funding options. Non-availability of quick business loans has indeed hurt the development of SME sector in the country. Not all SMEs find favour with traditional banks when it comes to loan eligibility due to lack of experience, absence of collaterals and infrastructure, non availability of healthy financial record and small ticket size of business loans.

Enter Loan Frame

Small businesses usually have two ways of connecting with the lenders today – walk into one of their branches or connect with a Direct Sales Agent. It happens that both these mechanisms of acquiring customers are very expensive for the banks and that cost is passed back to the borrower. Unlocking much needed finance in the form of alternate lending will help these SMEs accelerate growth, in turn creating new jobs, products, services and additional wealth. Further, with the advent of fintech companies, online platforms for securing business loans have also proliferated in recent times. These offer a convenient service for both lenders and small businesses in terms of loan origination costs and other benefits. However, more often than not, such companies do more harm than good. They share the loan enquiry with multiple banks simultaneously in a scattershot strategy and each financial institution begins to process the enquiry to convert you into a borrower. This indiscriminate spreading of your loan application then leads to multiple pulls of your credit report. Banks are also very wary of lending to someone whose credit report shows multiple inquiries in the recent past which adds to your woes as a small business owner.

To cope up with this scarcity in business funding, Loan Frame has emerged as a leading FINTECH company focused on SME lending and finance in India by building the country’s largest technology enabled SME lending marketplace. Loan Frame seeks to improve availability of business loans, whether secured or unsecured, by providing access to multiple lenders. Loan Frame’s approach to SME lending is oriented towards leveraging the growing trend of supply chain consolidation in various industries. The team believes that the platform provides advantage on both origination and underwriting. Considering the sound business framework, Loan Frame has received funding by leading global venture capitalists.

Loan Frame’s process offers a far better experience than conventional methods. This includes minimal submission of documents, easy documentation, ability to submit and extract information electronically, fast turnaround time and a single point of contact even while accessing multiple lenders. This is achieved through an accurate and quick information collection process during the documentation stage. Loan Frame analyses credit worthiness of the SMEs using analytics and scans other metrics digitally such as sales transactions. This method of digital evaluation of a SME significantly reduces the disbursement time. The complete process takes a maximum of 7 working days and the borrower can get business loans ranging between Rs. 10 lakh to Rs. 10 Crore with interest rates ranging from 9 – 22%. Loan Frame offers as many as 50 debt-financing products to SMEs that address their varying needs such as Working Capital, Business Expansion, MSME financing, Purchase of Equipment and Research & Development.

SME sector has been suffering under the burden of inadequate access to credit even while the same is indeed affecting the growth in the economy. Since, banks and other financial institutions cannot meet this requirement on their own, new emerging players in the FinTech industry like Loan Frame are trying to bridge this gap and contribute to the growth and development of the economy.

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