9 Credit Score Mistakes MSME Owners Make

Running a micro, small or medium business in India is not easy. You manage sales, staff, suppliers, GST, and cash flow often all at the same time. In between all this, credit score usually feels like a “bank problem,” not a business one. 

But the reality is different. 

Even if your business is doing well, a poor credit score can affect your chances of getting a business loan. In many cases, it leads to rejection, higher interest rates, or lower loan amounts. 

If you are already using TallyPrime, this matters even more. Your business data on Tally may be strong, but small credit score mistakes can still slow you down. 

Let’s understand the most common credit score mistakes MSME (Micro, Small and Medium Enterprise) owners make and how they directly affect business loans. 

What Is a Credit Score and Why MSMEs Should Care 

A credit score is a number that shows how responsible you are with borrowed money. Banks and NBFCs use it to decide whether they can trust you with a loan. 

In India, credit scores usually range from 300 to 900. A higher score means lower risk for the lender. 

Many MSME owners believe credit scores matter only for personal loans. That is a common misunderstanding. When you apply for a business loan, lenders often check your personal credit score, especially if your business is closely linked to you as the owner. 

A good credit score can help you get: 

• Faster business loan approvals 
• Lower interest rates 
• Higher loan eligibility 

A weak credit score does exactly the opposite, even when your business performance looks healthy. 

Common Credit Score Mistakes MSME Owners Make 

Mixing Personal and Business Finances 

This is one of the most common mistakes among MSME owners. 

Many business owners use personal credit cards or personal loans for business expenses. For example, paying suppliers through a personal card or using a personal loan to cover short-term business losses. 

When business cash flow slows down, personal repayments get delayed. That delay affects your personal credit score, which lenders check during business loan approval. 

Keeping personal and business finances separate makes your credit profile much cleaner and easier to manage. 

Missing or Delaying Loan or Credit Card Payments 

Many MSME owners think a delay of a few days will not matter. But even one delayed EMI can reduce your credit score. This usually happens during seasonal slowdowns. You may delay an EMI to manage salaries or rent first. From a lender’s point of view, this signals stress repayment. 

Repeated delays in payment make it harder to get capital or short-term business loans when you need them the most. 

Using Too Much of the Credit Limit 

Using most or all your available credit limit can damage your credit score. If you are using more than 70–80% of your credit limit, it indicates financial stress. 

For example, if your credit card limit is ₹2 lakh and you regularly use ₹1.8 lakh or more, it indicates financial pressure. Even if payments are on time, high credit usage is seen as risky behavior. 

Maintaining lower credit utilization shows better financial discipline and improves your loan eligibility over time. 

Applying for Multiple Loans at the Same Time 

When cash flow is tight, many MSME owners apply for loans everywhere like banks, NBFCs, loan apps, and online platforms. 

Each application creates a credit enquiry. Too many enquiries in a short period reduce your credit score. They also tell lenders that the business may be under financial pressure. 

Applying strategically, instead of applying everywhere, helps to protect your credit profile. 

Ignoring Credit Reports 

Many MSME owners never check their credit report, assuming it is always correct. This can be costly and affect your score. 

Sometimes errors appear in reports. A closed loan may still show as active. A paid EMI may appear overdue. Without checking, you may not even know why your business loan was rejected and these errors can unnecessarily reduce your credit score and cause loan rejection. 

So, regularly reviewing your credit report at least twice a year helps you fix such issues before they affect your plans. 

You can check your credit score on TallyCapital for free at anytime of the year.  

Closing Old Credit Accounts Too Early 

Some business owners close old credit cards or loans thinking it will improve their score. But credit history matters. Because older accounts show long credit history, stability and repayment discipline. 

Closing them suddenly can shorten your credit history and reduce your score. It means if an account is not harmful, it is often better to keep it active with minimal usage. 

Not Having Enough Credit History 

Some business owners avoid loans completely, thinking it is safer. But having no credit history can also work against you. 

If lenders have nothing to evaluate or analyze, approving a business loan becomes difficult, especially for first-time borrowers. 

Even a small loan or credit card, when managed well, helps build trust over time. 

Becoming a Loan Guarantor Without Understanding the Risk 

Many MSME owners agree to be a guarantor for someone else’s loan without thinking it through. The mistake is assuming that it won’t affect them directly. 

If the borrower misses payments, the responsibility comes to you. This impacts your credit score even though you never took the loan for yourself. Later, when you apply for a business loan, lenders see this as a risk and may reject or delay your application. 

What you should do is avoid becoming a guarantor unless it is truly necessary. Always understand the full repayment responsibility before agreeing. 

Taking Short-Term Loans Repeatedly 

Short-term loans seem helpful during cash shortages, but depending on them regularly is risky. The mistake is using these loans to manage daily business expenses instead of planning cash flow. 

Frequent short-term borrowing creates high repayment pressure and signals poor financial stability. Lenders may hesitate to offer long-term business loans when they see this pattern. 

The right approach is to plan cash flow better and use structured business loans only when they support growth, not survival. 

How These Credit Score Mistakes Affect Business Loans 

These mistakes may seem small, but their impact is serious. 

You may face: 

• Rejection of business loan applications 
• Higher interest rates than expected 
• Lower loan amounts 
• More documentation and stricter terms 

Most importantly, loan approvals get delayed when timing matters—for inventory purchases, expansion, or seasonal demand. 

For MSMEs, access to funds at the right time is critical. Credit score directly affects that access. 

How MSME Owners Can Improve Their Credit Score 

Improving your credit score does not require complex planning. It requires consistency. 

• Pay all EMIs and credit card bills on time, even during slow months. 
• Avoid mixing personal and business expenses as much as possible. 
• Use credit wisely and avoid maxing out limits. 
• Check your credit report regularly and correct errors quickly. 

Even small improvements, when done consistently, make a big difference over time. 

How TallyCapital Helps MSMEs Get Business Loans Easily 

As a Tally user, you already manage your business data digitally. This is a major advantage. 

TallyCapital uses your real business data, such as cash flow and transaction history, to understand your actual business performance. This allows lenders to look beyond just past credit score mistakes. 

With TallyCapital, MSMEs benefit from: 

• Faster loan decisions 
• Quick loan offers based on real business data 
• Better access to business loans, even when traditional lenders hesitate 

Instead of judging only on past credit behavior, TallyCapital focuses on your present business strength. 

Conclusion 

Credit score mistakes are common among MSME owners. The good news is that most of them are fixable. 

By understanding how credit scores work and improving small financial habits, you can protect your loan eligibility and reduce borrowing costs. 

If you are already using Tally, you are in a strong position. Use your business data wisely, plan loans carefully, and let TallyCapital support your business growth at every stage. 

FAQs

1. Does credit score affect business loans for MSMEs?
Yes. Most lenders check the personal credit score of MSME owners, especially for proprietorships and small businesses.

2. What is a good credit score for MSME business loans in India?
A credit score above 700 generally improves approval chances and helps secure lower interest rates.

3. Can MSMEs get business loans with a low credit score?
Yes, but options may be limited. Platforms that use business data, like cash flow and transactions, may still offer loans.

4. How often should MSME owners check their credit score?
At least twice a year, or before applying for any business loan.

5. Do delayed EMIs really impact business loan approval?
Yes. Even a single delayed EMI can negatively affect your credit score and delay or reject loan approvals.