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Tuesday, December 5, 2023

How Can You Improve Your Business’ Credit Score?

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Few people launch businesses based on a passion for managing finances. But as well as getting to grips with marketing, business development and HR, you also need to monitor your business’ credit score.

Understanding what it is and how to use it to your advantage can give your business the financial flexibility it needs to grow. And with the UK’s economic recovery looking stronger than first feared, now’s the time to put yourself in the best position possible.

What is a business credit score?

You’re likely aware of your personal credit rating if you’ve ever registered for a credit card, bought a car on finance or applied for a mortgage. It’s designed to give lenders an idea of how reliable you are when it comes to repaying debt – and the same principle applies for business credit scores.

Business credit ratings work independently from personal credit scores for limited companies. A positive score can help your business get access to finance at better rates, while also improving your prospects when entering long-term contracts with suppliers or clients.  

Some types of business finance such as a secured loan rely less on credit rating and more on assets, but a strong score will still make your options more attractive.

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What affects your business credit score?

Business credit ratings are usually between 0 and 100, with a higher score being more appealing to lenders. Several factors can cause your credit rating to go up or down, including:

  • Whether you have a history of paying bills on time and in full
  • How often you apply for credit – too many loan applications in a short period of time can make your business look desperate for cash
  • If you have any County Court Judgements (CCJs) or insolvency proceedings against your business
  • Whether you file your accounts to Companies House on time
  • Your current debt obligations and credit utilisation

Each credit reference agency has their own criteria however, so you may get slightly different scores with different agencies.

How to improve your business credit score

If you’ve checked your score and found it to be lower than you expected, there are several different ways to improve your prospects.

  • Pay bills on time – while delaying payment might help your cashflow, too many late payments will suggest you’re in financial trouble
  • Share as much financial information as possible, while making sure your credit report doesn’t contain any mistakes
  • Limit your credit applications – you could ask for quotes instead to prevent a credit search being carried out
  • Carry out due diligence on the credit scores of your suppliers and customers to reduce the risk of their problems dragging you down
  • Sign up for alerts of when your business credit rating changes so you can act quickly to put issues right

With a firm handle on your business’ credit score, you can approach lenders and partners with greater confidence of success.  

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