Why a bad personal credit score can hinder your business
Your personal credit score can either make it easier to access finances for business growth or make it harder and more expensive. Here’s all you need to know.
A personal credit score is a rating that is given to an individual based on the debt they have undertaken and their repayment behaviour and history. This credit score or CIBIL Score depends on various factors like credit card debt and repayment, delays or defaults on Personal Loan EMIs, number of outstanding loans, loan applications and rejections, etc. A bad credit score is like a black mark against you, and can call into question your ability to repay a new loan. It can thus prevent lenders from giving your business needed finances for growth and sustenance via a personal or business loan.
Impact of Bad Personal Credit Score
The impact of credit score on Personal Loans or business loans is profound. If your personal credit score is low, banks would be more resistant to lend you money, and this could hamper your need for raising capital for your business. A bad personal credit score could also lead to you being charged higher interest on your credit cards and new loans. Some of the adverse impacts of having a bad personal credit score are listed below:
- Difficulties in Applying for a New Loan for Business: A personal credit score reveals your ability to repay a debt. If this score is bad, there are high chances of lenders rejecting your loan application. That aside, it is also possible for a lender to introduce complicated terms even if it does end up giving you a loan. These terms will make repayment difficult for you once the loan has been borrowed. Certain lenders may also approve your loan; however for applicants with a poor credit score, they could easily increase interest rates. This would be a burden for you and would elevate the loan repayment amount drastically.
- Problems in Renting a Work or Office Space: : Renting a work space or office is becoming an increasingly cumbersome task with various safety laws and regulations put into place. Landlords require a range of documents for security and safety. A poor credit score could cause a landlord to lose faith in your ability to pay regular rent and hence reject your lease application.
- A Hitch in Securing Financing with Investors and Shareholders: Capital is the core of every successful business, and there are a range of sources of finance that can help a proprietor raise capital. These sources include of options like equity, loans, debentures and much more. When encouraging investors to invest capital in your business, you would be required to show them all statements and documents, along with your credit score. A poor credit score will create a bad impression with investors, and no matter how great your business idea, it won’t attract investments.
- Damage to Goodwill: Goodwill is the most important intangible asset of a business. It is the word of mouth that can make or break your business. A poor credit score can lead to a bad name for a business and since trust is crucial for success, it can even undermine the trust your associates and staff has in you. Damaged goodwill is difficult to repair, and once a business gets a bad name, it takes years of tedious effort to restore the its reputation.
Read Blog: How to Get Personal Loan with Bad Credit
Thus, it is in your best interest to maintain a good personal credit score by repaying loans and paying your EMIs on time. Whether you need money for business or personal reasons, apply for a loan from Bajaj Finserv, which offers low interest rates and flexible payment options apart from fast processing and online application.