All you need to know about Company Credit Report

Company Credit Report (CCR) is a comprehensive and detailed record of a company or a firm which gives insights into the credit health of a company so cibil registration of a company is necessary. CCR is prepared on the data given by the lending Banks and Institutions. This report gives information such as the nature of the business, the address of the company, related parties such as Promoters, Partners Holding and Subsidiaries. It gives a record of the type of credit facilities taken, the status of present facilities. CCR is used by Banks and Lending Institutions to check creditworthiness and riskiness of a company before extending credit facility.

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How a Company Credit Report(CCR) is affected?

Your company’s Credit Report is generated on the basis of payment history and company traits by CIBIL. In many ways, CCR is prepared similarly to preparing an individual credit report. Following are some factors that can impact your company’s Credit Report:

1. Length of Credit History – A company’s Credit Report is similar to an individual because both look into vintage or length of credit history. Longer credit history is beneficial for CCR.

2. Credit Utilization Ratio –  Company’s current outstanding loan obligation is divided by available limit is used to calculate the ratio of credit utilization. Higher utilization of available credit facility shows a company credit appetite for external funds. The dependency of external funds reflects the riskiness of the company.

3. The Repayment History –  To meet company working capital, expansion of business, buying and supplying goods companies need different types of credit facilities and loans. The companies have to pay EMIs and Interest to lenders. Repayment of these facilities is taken into consideration while preparing CCR. Timely repayment and servicing of interest have a positive impact on CCR.

4. Outstanding Debts –  If a CCR is having outstanding then it is an indicator that the company is not having sufficient liquidity to meet out EMIs and Interest Servicing of loans. Having outstanding is a reflection of the riskiness of the firms and the same is into taken account by CIBIL while preparing CCR. To keep CCR in good credit score companies should pay all EMIs and Interest Servicing on time otherwise it impacts CCR negatively.

5. Size and Life of the Company – Vintage of the firm or how old a company has better Credit Rating as it shows that is able to do business for a longer period of time and have a track record. While preparing CCR old company will have a better credit rating as compared to a new company.

6. Industry –  Certain weight age is given to the sector in which a company is operating. For example, Real Estate Sector has categorized high-risk industries owing to the ups and downs in these sectors due to economic, external and internal factors. The companies of these sectors might have a low credit rating as compared to companies operating in other sectors.

WHAT IS THE CIBIL RANK? 

An individual is assigned a Credit Score. In the case of CIBIL Score which is between 300 to 900, the CIBIL Rating is between 1-10. Rating 1 is considered as the lowest and 10 is considered as the best. Up till Credit Rating is calculated which are having an annual turn over between Rs 10 Lakh to Rs 10 Crore. Companies which are having Turnover out of this limit is not considered for Credit Rating.

As per the CIBIL Transunion, 70 % of companies who were sanctioned loans had a rating between 1 and 4 were sanctioned loans.

How to Increase CIBIL Score:

Having good credit health and a good credit score is equally important for individuals and companies. Following are the ways on how to improve CIBIL Rating.

Timely Repayment- Timely Payment of Credit Facilities- A company might be having different loans and credit facilities. All EMIs and Interest must be paid on time religiously. Timely repayment has a direct impact on Credit Rating. It also created a positive impact on lender while sanctioning Loan or Credit Facility.

Low Utilisation of Credit Limit- Company should keep minimum utilisation of limits as much as possible. A company should avoid exceeding Credit Limits as this is considered a risky phenomenon. In such a scenario, a company should avail Temporary Overdraft (TOD) from the Bank. If a company is using Credit Cards to meet expenses then the company should keep in mind low utilisation of credit limits available on credit cards.

Removal of Wrong Entry- Companies should check their Company Credit Report timely to check the correctness of the facts and figures. If there is any discrepancy or misrepresentation of facts which may be due to some mistake in reporting data to CIBIL by lending institutions of fact then it should be corrected and updated in the report immediately.

Updation of Closed Loans- All loan accounts or credit facility which have been closed should not let open but should be reported as closed otherwise it will have an impact on calculating CIBIL Rating.

So having good credit health and good credit score is equally important for individuals and companies.