A business credit score is a way for lenders to measure your business’ financial health and creditworthiness. In the same way as a personal credit score determines your ability to secure loans and credit cards, a business credit score determines how successful your business is likely to be when it comes to accessing financing, securing investments and negotiating favourable terms.
Here’s Why a Good Business Credit Score is Key
A good business credit score can be extremely valuable; it enables your business to access funding when needed, without having to worry about being turned down, or approved with a high interest rate. This can save you money in the long run, giving you more flexibility to invest in growth. A low business credit score could result in higher borrowing costs, stricter repayment terms or even difficulty in securing funding in the first place.
Factors That Impact Your Business Credit Score
Accuracy and Timeliness of Financial Filings Every business, whether you’re an SME or a large, established organisation, needs to file financial accounts, tax returns and corporation tax documents with HMRC. Filing full and accurate accounts rather than opting for abbreviated versions demonstrates that you’re being transparent and responsible about your finances.
Payment History Consistently paying bills, suppliers and loan repayments on time plays a huge part in maintaining a good credit score. If you are late paying or if you miss a payment, your credit score will be impacted. This can indicate financial instability to lenders, making them more likely to see you as a financial risk. Setting up automated payments and managing your cash flow effectively can help to make sure your payments are on time.
County Court Judgments (CCJs) and Insolvency CCJs and insolvency can impact your business credit score in a significant way. Both of these signal financial distress and can make it difficult for your business to secure loans, attract investors and establish partnerships.
Credit Utilisation and Debt Levels As is the case with a personal credit score, the amount of credit and debt your business has plays a part. High credit utilisation – meaning, if you regularly use a lot of your credit and reach your limit – can suggest financial problems. If your business is seen to be struggling financially, you’re unlikely to be approved for additional credit.
Business Age and Credit History There’s nothing to say that relatively new businesses, such as startups, can’t have a good credit score. But, there’s very little information for lenders to look at. It’s not uncommon for newer businesses to have lower scores simply due to a lack of credit history, while older businesses with a strong track record of healthy finances and repayments tend to have higher scores.
7 Ways to Improve Your Business Credit Score
Don’t worry if your business’ credit score isn’t perfect, as there are things that you can do to improve it. Like a personal credit score, a business credit score changes regularly, and showing that you can manage your business finances, repay loans and keep your credit utilisation low looks good to lenders.
Pay Bills and Loan Repayments on Time Timely payments are one of the main things to look at when you’re trying to improve your business credit score. Paying your suppliers, lenders and service providers on time not only boosts your credit score, but also helps maintain good business relationships.
File Full Financial Accounts on Time Submitting full and detailed accounts to HMRC and Companies House gives a clear picture of your business’ financial health. Lenders and credit agencies can view these filings and see them as a sign of financial honesty and openness.
Keep Your Business Information Updated If there are any changes to your business details – such as a change to your registered office address, business name or directors – it’s important to update HMRC, Companies House and relevant business partners as soon as you can. This prevents unnecessary red flags appearing on your report.
Be Strategic About Credit Applications Applying for business financing too often can negatively impact your credit score, so be smart about what you want to borrow. Lenders may view multiple applications as a sign of financial distress, making them less likely to approve your request for a loan or credit. There are eligibility checkers available, and you can use these before formally applying for credit. You’ll have a good idea of whether or not you’ll be approved, without having any unnecessary hard searches on your credit report.
Use Business Credit Instead of Personal Credit If you have a startup or a small business, it’s important to keep your business finances and your personal finances separate. Relying on personal credit blurs the line between you and your business, and it doesn’t give a clear picture of where your business stands financially. It’s a good idea to open a business bank account and use business credit to establish a credit history, one that’s specifically for your business. This helps to demonstrate financial stability and build a stronger credit profile, without putting your personal finances in the mix.
Stay Updated On Your Business Credit Score Checking your business credit score frequently allows you to spot potential issues before they become serious problems. Signing up for alerts can help you to stay informed of any changes – such as new credit inquiries or missed payments – and see if anything has been reported incorrectly. Sorting out any errors or incorrect information in your credit report quickly prevents unnecessary damage to your score.
Monitor the Credit Scores of Other Businesses Your business credit score isn’t just influenced by your own financial actions, it can also be affected by the financial health of your suppliers, partners and clients. If they experience financial trouble, it could lead to issues that impact you. Regularly reviewing their credit scores can help you to anticipate risks and make informed business decisions with those risks in mind.
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Use Business Credit Instead of Personal Credit If you have a startup or a small business, it’s important to keep your business finances and your personal finances separate. Relying on personal credit blurs the line between you and your business, and it doesn’t give a clear picture of where your business stands financially. It’s a good idea to open a business bank account and use business credit to establish a credit history, one that’s specifically for your business. This helps to demonstrate financial stability and build a stronger credit profile, without putting your personal finances in the mix.
Stay Updated On Your Business Credit Score Checking your business credit score frequently allows you to spot potential issues before they become serious problems. Signing up for alerts can help you to stay informed of any changes – such as new credit inquiries or missed payments – and see if anything has been reported incorrectly. Sorting out any errors or incorrect information in your credit report quickly prevents unnecessary damage to your score.
Monitor the Credit Scores of Other Businesses Your business credit score isn’t just influenced by your own financial actions, it can also be affected by the financial health of your suppliers, partners and clients. If they experience financial trouble, it could lead to issues that impact you. Regularly reviewing their credit scores can help you to anticipate risks and make informed business decisions with those risks in mind.
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