Running a medical practice requires substantial financial investment—whether it’s setting up a new clinic, purchasing high-end medical equipment, hiring skilled staff, or expanding services. While doctors earn well, their financial needs often demand external funding through business loans.
However, obtaining a business loan is not always simple. In this blog, we’ll explore how credit scores impact business loans for doctors, what factors influence them, and how doctors can improve their scores.
Understanding Credit Scores
A credit score is a three-digit number that represents an applicant's creditworthiness. In India, the most commonly used credit score is the CIBIL score, which ranges from 300 to 900.
- 850 and above – Excellent: High chances of loan approval with low interest rates.
- 751-850 – Good: Loan may be approved, but with slightly higher interest rates.
- 651-750 – Fair: Loan approval is difficult, and interest rates are usually high.
- 300-650 – Poor: Loan rejection is highly likely.
A high credit score signals that an applicant has a strong, low-risk repayment history, whereas a low score raises red flags for financial institutions.
Factors Influencing Credit Scores
Understanding what affects a credit score can help doctors manage their finances better and improve their chances of securing a business loan.
1. Payment History and Its Impact
Your payment history is the most significant factor influencing your credit score. Missing Equated Monthly Instalments (EMIs) or defaulting on payments negatively impacts the score. Doctors must ensure timely repayment of:
- Credit card bills
- Existing loan EMIs
- Utility bills linked to credit reports
2. Credit Utilisation Ratio
The credit utilisation ratio refers to the proportion of available credit that an individual uses at any given time. Some financial experts suggest that keeping this ratio lower might be beneficial for maintaining a healthy credit profile. For instance, if a doctor has a credit card limit of ₹5 lakh and frequently uses ₹4 lakh, it may indicate a higher dependence on credit, which financial institutions could consider while assessing loan applications.
(Note: The impact of credit utilisation on credit scores may vary based on the policies of different credit bureaus and financial institutions.)
3. Length of Credit History
A longer credit history helps build a strong credit score. Even if a doctor has cleared all debts, keeping old credit cards active (with minimal use) is advisable to maintain a long and healthy credit record.
4. Types of Credit in Use
A diverse credit mix—such as a combination of secured loans (home loans, car loans) and unsecured loans (credit cards, personal loans)—helps improve creditworthiness.
5. Recent Credit Inquiries
Each time a doctor applies for a loan, financial institutions perform a hard inquiry on their credit report. Multiple applications within a short period indicate financial distress and can lower the credit score.
Importance of Credit Scores for Doctors
A credit score is crucial in determining a doctor's ability to secure a business loan. Financial institutions use it as a key indicator of creditworthiness, influencing not only the approval decision but also the terms and conditions of the loan.
Assessment of Creditworthiness
Financial institutions use credit scores as a primary screening tool to determine whether a doctor qualifies for a loan. A higher credit score reassures loan providers that the applicant is financially responsible.
Impact on Loan Terms
A strong credit score can help doctors secure:
- Lower interest rates: Reducing overall repayment costs
- Higher loan amounts: Essential for large-scale clinic setups
- Faster approvals: Avoid lengthy documentation and scrutiny
On the other hand, a low credit score may lead to higher interest rates, lower loan amounts, or even outright rejection.
Specific Requirements by Indian Financial Institutions
Different financial institutions may have varying credit score considerations when evaluating business loan applications. In many cases, a higher credit score might improve the chances of obtaining favourable loan terms, while a lower score could lead to stricter conditions. Some financial institutions may offer business loans to doctors even with a moderate credit score, but the terms could differ based on individual assessments.
Tips for Doctors to Improve Their Credit Scores
Mentioned below are the tips to improve credit scores for getting business loans for doctors:
Ensuring Timely Payment of Dues
- Set up automatic payments or reminders for EMI and credit card payments.
- Avoid minimum payments on credit cards—pay the full outstanding amount.
Maintaining a Healthy Credit Utilisation Ratio
- Use less than 30% of the credit limit to maintain a strong credit profile.
- Increase your credit limit but maintain the same spending pattern.
Monitoring of Credit Reports Regularly
- Check credit scores every 3-6 months to identify and correct errors.
- Use the right platform for free annual credit reports.
Limiting Hard Inquiries
- Avoid applying for multiple loans or credit cards in a short period.
- Instead, compare options and apply selectively.
Diversifying Credit Mix
- Maintain a balance between secured and unsecured loans.
- If you have only credit cards, consider taking a small business or personal loan and repaying it on time.
Conclusion
A credit score is one of the most important factors determining whether a doctor can secure a business loan. By maintaining a good credit score, doctors can access better loan offers, lower interest rates, and faster approvals. For those with low credit scores, improving financial habits, making timely payments, and diversifying credit usage can significantly boost their chances of loan approval.
If you are a doctor planning to take a business loan, start by checking your credit score and taking proactive steps to enhance it. A strong credit profile ensures loan approval and saves a significant amount in interest payments.
FAQs
1. How does a credit score impact my eligibility for a business loan as a doctor?
A high credit score increases the likelihood of loan approval, better interest rates, and higher loan amounts. A low score may lead to rejections or unfavourable terms.
2. What is the minimum credit score for business loans?
Most financial institutions require a minimum credit score of 750, but some Non-banking Financial Companies (NBFCs) may approve loans with a score of 650 or above, albeit with higher interest rates.
3. How can I improve my credit score as a doctor to secure a business loan?
- Pay all EMIs and bills on time.
- Keep your credit utilisation below 30%.
- Avoid multiple loan applications in a short period.
- Monitor your credit score regularly.
4. How long does it take to improve a credit score for loan eligibility?
Improving a credit score takes 3-6 months with consistent repayment behaviour and financial discipline.
5. Are there business loans available for doctors with no credit history?
Yes, some financial institutions offer loans for first-time applicants. Providing collateral or a co-applicant with a strong credit profile can increase approval chances.
6. What are the best practices for building a strong credit score as a medical professional?
- Maintain a long credit history.
- Use a mix of secured and unsecured credit.
- Monitor and dispute incorrect entries in your credit report.
7. How often should I check my credit report to maintain a healthy credit score?
Doctors should check their credit report every 3-6 months to ensure accuracy and detect errors early.
8. What tools or services are available to help doctors monitor their credit scores?
Several online platforms and financial institutions provide credit report monitoring services. These services allow doctors to check their credit scores periodically, track changes, and identify any discrepancies that may need correction.