What is a business credit score?

You’re probably aware of your personal credit score. But did you know you have a business credit score too?

If not, don’t worry. You’re certainly not alone.

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.

In this article, we look at:

  • Why your business credit score is important
  • What affects it
  • How you can improve it
  • What finance options may be available to you if your score is lower than you’d like

How to run a credit check on a company

The most straightforward and efficient method to investigate the credit worthiness of a business is to obtain an official business credit report from a credit reporting agency.

Credit reporting agencies that operate in the UK include Experian, Creditsafe, Credit Passport, and Dun & Bradstreet.

Each agency uses its own specific criteria when calculating the credit score of a business but all draw from common factors to assess a company’s credit worthiness.

Many of these companies offer a free trial service but operate a subscription model for regular users.

What does a business credit check show?

Lenders, landlords, and suppliers use your credit check to determine how financially reliable your business is.

They'll take a close look at things like how promptly your business has made payments in the past, any outstanding debt it might have, and how it's been using its available credit.

A business credit report generally provides the following details:

  • Official Business Name and Communication Information: this includes the registered name of the entity and its primary contact details.
  • Credit Score and Record: this is a numerical representation of your business's creditworthiness, derived from its financial history.
  • Payment Habits and History: this section offers insights into the past and present payment behaviours of your business, indicating your reliability in fulfilling financial obligations.
  • Public Records and Liens: this data reveals any legal claims or encumbrances on your business's assets, providing a clearer picture of its financial standing.
  • Business Financials: this incorporates detailed information about the company's revenue, expenses, and overall financial status.
  • Trade References and Suppliers: this information showcases the company's operational reliability through its relationships with trade partners and suppliers.
  • Industry Information and Risk Assessment: this segment outlines the risk factors associated with the company's industry and offers an analysis of the business's potential risks.

Why is my credit score 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 lending or investments.

This can be important when applying for debt 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 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.

And it could come into play in day-to-day business dealings – for example, when you’re negotiating contracts or tenders, or when you’re looking for insurance.

What affects my credit score, and how can I improve it?

A combination of factors affect 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.

The following isn’t an exhaustive list and doesn’t guarantee that your business credit score will improve as a result.

Ways to improve your credit score

Be prompt on payments

Your credit score may improve if you pay invoices on time, and if you pay creditors early.

Punctual repayments shouldn’t include only traditional bills and credit repayments.

Other creditors, fines or fees may also factor in to your score.

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.

Filing your business accounts with Companies House on time, and always submitting accounts and tax returns by their set deadlines, can boost your credit score.

And updating directories and credit reference agencies with relevant information could help show that you’re an organised and competent business.

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.

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.

Stay on top of your 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.

I'm looking for finance. What are my options if my credit score is poor?

As well as reviewing factors that may affect your credit rating, there are further options you might consider if your credit score is poor and you’re looking for finance to grow your business.

Again, these are suggestions only and do not guarantee that you’ll obtain finance as a result.

If you have a poor credit score

Look into all debt options

If you’re focused on debt finance, consider the options available to you .

As well as more well-known products like overdrafts and business loans, there are other types of funding too.

For instance, even though it still requires a credit check, 94% of Leasing and Hire purchase loan applications are successful.

Leasing and Hire Purchase is often used to help businesses acquire equipment, machinery and vehicles.

It doesn’t necessarily require you to be profitable, just cash flow-positive.

A poor credit rating could make approval more difficult, but it’s not always a barrier.

Explore other finance options here.

Explore equity too

You may want to examine types of finance other than debt.

Equity investment takes many different forms and could be an option instead of, or as well as, debt finance.

If you don’t want to sell a stake in your business, you may prefer a loan.

But if your business is ready for further investment, equity finance may be for you.

For example, Angel investment and Equity crowdfunding can both offer early-stage businesses cash injections to help them grow.

And they may look at other aspects of your business besides its credit rating when deciding whether to invest.

Remember that while your credit score will be an influence, investors may also focus on how much they believe in your product, your business plan or you personally as the business’ leader.

Final takeaway

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.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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