Seeking financial assistance for personal or business purposes has become faster and easier than before. However, with the ease of the process comes various compliance and conditions based on which your loan eligibility or the loan terms are decided. One of the most critical components while obtaining a loan is your Credit Score. There is not much difference between the credit score for personal loans or credit score for a business loan, as lenders do not discriminate between the two. Hence, a personal credit score is key to your business loan. Read on to know what credit score is considered an excellent score to avail of a business loan.
Interpreting Low and a High Credit Score
A credit score is calculated by considering various factors such as your history of availing of a credit facility, your repayment behavior, your regularity in the utility payment, credit utilization ratio, and so on. Different credit rating agencies use various parameters, and not all agencies use the same parameters to compute the credit score. That is why every lender will have its standards to calculate the credit score.
A low credit score indicates that you have been irregular in repaying or you have a history of utilizing the credit inefficiently. Hence, a low credit score will put you in a high-risk category, and chances are there that your loan may get rejected, or the terms of your loan will be decided by the lenders strictly.
A high credit score means that you have been regular in making recent debt payments or have not previously utilized many credit facilities. The lenders consider high credit score individuals as safe borrowers or low-risk borrowers. Therefore, with a high credit score, you can view your loan’s increased chances of getting approved, and lenders will set favorable conditions for the loan.
Credit Score of Above 700 is Considered ideal
Interestingly, every lender will have their own business loan eligibility criteria and its standard credit score from borrowers. Therefore, there is no thumb rule that a credit score of more than 700 will get you the best business loan of your choice. However, based on a general practice followed by many lenders, it is observed that individuals with a credit score of 700+ could fetch desired business loans with favorable conditions.
Credit Score of 650 – 700 is Considered Average
Although there are no specific thumb rules about the minimum and the best credit score for loans, a range is typically considered the best or an average or a bad credit score range. Similarly, a credit score of 650 – 700 is not regarded as insufficient, and you will still have chances to get the loan approved. However, the only drawback will be that you will get the loan based on the lender’s conditions. Since your score is below 700, the lender may put certain restrictive or stricter requirements where you may have to pay a bit higher interest rate than you may get under a credit score of 700 and above.
A Credit Score of less than 650 is Considered Bad.
As per the most reliable credit rating agency – CIBIL, a minimum credit score of 650 is required to obtain a business loan. With a credit score of less than 650, your chances of getting the business loan approved are minimal. If the loan gets approved, the lenders will make sure to put harsh conditions for the loan.
Succinctly, a good credit score of 700 and above for a business loan will allow you to set conditions that are in your favor and a desirable interest rate.
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