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How to Improve Business Credit Score?




You’ll likely be aware of what a personal credit score is and how to improve but a business credit score is a new concept to most. In this guide, we’ll let you know what a business credit score is, how to improve your business credit score and what affects it.


Experian is one of a number of credit reference agencies that collect your credit information. It estimates that almost two-thirds of business owners have never checked their credit score, while nearly 90% say they don’t know what goes into it.



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What is a business credit score?

It is a measure of the creditworthiness of a business, which is based on multiple factors including, payment history, total debt, when you held credit and for how long, the type of finance you have and any finance applications you’ve made recently. These create a picture of the financial position of the business and the level of financial risk that it holds for a lender. Your business credit score ranges from 0 to 100, with 0 representing very high risk and 100 representing very low risk.


What is a good business credit score?

Credit reference agency Experian rates a score of 76 or above to be a good business credit score, with 50 to 75 being considered fair.


Why is my business credit score so important?

Your business credit score works a lot like your personal one. And it's one thing banks and other lenders (and investors) use to make decisions about potential lending or investments.


This can be important when applying for business finance. If you want to take out a Business Loan, an Overdraft or another form of debt, your score will determine factors such as:

  • How much you can borrow.

  • Your available interest rate.

  • Whether you’ll be approved for a loan at all.


There are other implications too. Unlike a personal credit score, your business credit score is available for anyone to view. This means customers, suppliers and other companies can check it. It could also come into play in day-to-day business dealings – for example, when you’re negotiating contracts, tenders, or when you’re looking for insurance.



What affects my business credit score?


A combination of factors affects your business credit score. One of the most obvious – and influential – is whether you pay your bills on time. We’re not just talking about utility bills – it also includes your invoices and other creditors. If you continually make payments late or miss them completely, it could have a negative impact on your score. But other things contribute to your credit score too, such as:

  • The number of times you’ve applied for credit in the past.

  • Whether you’ve exceeded overdraft limits.

  • Whether you file your business accounts on time (if this applies).

It means there’s no quick fix to boosting your score. However, by knowing how it’s compiled, you could take some steps to improve it, particularly if you need to or you feel it’s holding you back.



How to improve your business credit score


1. Be prompt on payments:


Your credit score may improve if you pay invoices on time, and if you pay creditors early. And punctual repayments shouldn’t include only traditional bills and credit repayments. Other creditors, fines or fees may also factor into your score.


2. Keep your business up to date:


A credit score isn’t simply compiled whenever money changes hands. You may also gain rating points by keeping your business information updated in key places.  Filling your business accounts with Companies House on time, and always submitting accounts and tax returns by their set deadlines, can boost your credit score. Updating directories and credit reference agencies with relevant information could help show that you’re an organised and competent business.


3. Limit your credit checks:


Your credit record is updated every time you apply for credit. Each credit search combines to form a picture of your business health. Making lots of applications for credit could negatively affect your score and your ability to access finance.


4. Keep your personal finances in check:


Business and personal credit ratings tend to remain separate. However, some types of finance take both into account, so don’t forget one without the other. If your business credit score is low – perhaps you’ve had too many failed credit applications – having a strong personal credit rating could make you more able to borrow money from lenders.


5. Monitor your business credit score:


Knowing what makes up your credit rating isn’t just useful for future planning, it could help you confirm that your score is accurate. With so many factors contributing to the score, it may be that there are some discrepancies that need correcting. Ensuring your information is accurate and up to date can benefit the application process. It’s also worth remembering that each credit reference agency has slightly different criteria and uses different information to compile your score. This means your credit rating may be higher with some agencies than others, so do your due diligence.


6. File full accounts

If you are a limited company filing full accounts instead of abbreviated accounts on Companies House will aid your credit score and provide a more accurate history for your business.


7. Only apply for credit when it is necessary 

We understand that it can be tempting to apply for credit and explore your options, but making multiple applications over a short time period will result in multiple ‘footprints’ or searches on your account which can be viewed as you are struggling to secure funding. Which will be noted on your record and can negatively impact your credit score.



Conclusion


With so much to keep you busy when running a small company, staying on top of your business credit score may never have seemed a high priority. But it’s a key component of your business’ DNA. Being aware of your rating, and making conscious efforts to maintain or change it, could be crucial in ensuring your business stays one step ahead of the game.


If finance could benefit you and your business then please do not hesitate to contact one of our account managers via info@approved-finance.co.uk, call us on 01908 429888 or visit our Business Finance Guide section to download our free Business Finance Guide.


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