Understanding your credit report

Your credit report plays a key role in determining which financial products you can access. As a result, knowing how they work and checking your report can unlock potential finance options for you. Find out how you can view yours, what it means and how to improve your credit score. 

Personal vs business credit report

If you are a small business owner, you will have one personal credit report based on yourself and a business credit report for your company. Your personal credit score and business credit score will be calculated using different factors, which we go into below. Although personal and business credit reports are different, both can play a role when applying for financial products, so you should monitor both carefully.

Personal credit

What is your personal credit report?

Your personal credit report is a collection of data that is individual to you and your creditworthiness. It is based largely on your credit history, showing what financial products you have currently or in the past, and how you have used them. It shows how you’ve handled credit in the past and it allows lenders to assess how likely you are to pay back your debts on time.

What’s included in a personal credit report? 

Your report is made up of the following key information:

1. Personal information – your name, address, date of birth.
2. Current debt levels – how much you owe current lenders.
3. Payment performance – any missed payments on previous/current accounts.
4. CCJ’s – if there are any CCJ’s (County Court Judgements) against you.
5. IVA – whether you have even been declared bankrupt or entered into an IVA (Individual Voluntary Arrangement).

Who creates my credit report? 

Your credit report is created and held by Credit Reference Agencies. They draw all the information from a wide variety of sources, then make it available to lenders. People often think that these agencies are government run but they are actually privately owned companies. Whilst they are for-profit, they are governed by laws that restrict how they can use your information. This is also true for your business credit report.

What is your personal credit score?

As well as holding your credit report, a credit reference agency will also give you a credit rating or score. The number is an indication of how likely you are to repay your debts on time, and takes into account all the information in your report. A high score suggests you’re in good financial health, whereas a low score may mean you have a lot of debt, have a poor repayment history, or have limited history with financial products.

How does your credit score affect finance applications?

Each lender will have their own criteria of who they will accept. Some products are designed specifically for those with low credit scores, others for high scores. They will look at the information in your report and decide what they can offer you. 

Your credit report will not only affect whether you are approved, but also what price you pay. Typically those who have a good credit history will be seen as lower risk and will therefore pay lower interest rates or fees. 

Building your personal credit score:

Having a good credit score is important for many reasons, including your ability to get a mortgage, car finance and when you’re starting a business. Some key steps to improve your personal credit score are:

1. Register on the electoral roll – if you’re name doesn’t appear on here then it will be a lot harder for you to access finance. These are used during identity checks.
2. Amendments – check your file and amend any mistakes. This could be affecting your score in a negative way.
3. Pay your bills on time – from your phone bill to credit cards – they all impact your credit score.
4. CCJs – receiving and leaving CCJs unpaid can have a negative impact on your credit score.
5. High levels of existing debt – settle existing debt where possible. If you can show you’ve repaid your debts early then this can show you’re a reliable borrower.

Where can I check my personal credit report?

You can check your personal credit report online with many CRAs. The three most commonly used agencies are:

1. Experian – You can sign up for free for the first 30 day trial. It costs £14.99 after this, although checking your score is free.
2. Equifax – Account is free for the first 30 days. After this period, it will charge you £9.95 per month.
3. TransUnion (formally CallCredit) –  They offer free access to its credit reports through Noodle.

Business credit

You may know everything about your personal credit report and score but do you know about your business counterpart? Unfortunately, lots of business owners remain in the dark about their business credit report and rely to heavily on their personal one, even when applying for a business loan. 

What is your business credit report?

Your business credit report is individual to your business. Just like your personal report, it contains information on the financial products you’re using currently and have done in the past. It can be used by lenders to assess if you meet their criteria, and what price they will give you.

What’s included in your business credit report:

Your business credit report includes the following key information:

1. Delphi score – How credit agencies rate you out of 100 every month. It is designed to predict the likelihood of a company closing over the following 12 month period.
2. Days beyond terms (DBT) – Is the number of days, on average, that a company pays its invoices after a payment has become due.
3. County Court Judgements (CCJs) is a public record of debt. It shows that the company has been taken to court for the recovery of a sum of money.
4. Alerts – Warning flags where a company exhibits certain conditions that may be of concern.

What is your business credit score?

Just as with personal credit, as well as holding your business credit report, a credit reference agency will also give your business a credit rating or score. The number is an indication of how likely you are to repay your debts on time, and takes into account all the information in your report. A high score suggests you’re in good financial health, whereas a low score may mean you have a lot of debt, have a poor repayment history, or have limited history with financial products.

How will finance providers use my business credit report?

When you apply for a financial product for your business, the lender will view your credit report and score. Each will have their own criteria, and different products will cater for those with high credit scores and low credit scores. Typically, businesses with a good credit history will be more likely to get approved and more likely to get cheaper rates.

Will lenders look at both my personal and business credit report?

Depending on the provider and the financial product, both your personal and business credit report may be taken into account. Business owners may use personal credit to support their business, or a business loan provider may ask for a personal guarantee from the key shareholders. In either case, the credit history for both the business and you personally will be assessed as part of your application.

Building your business credit score

Like your personal credit score, having a good business credit score will likely help you to access more finance products and on better terms. The key steps to improve your business credit score are:

• Check your credit rating with one of the major credit agencies – if you notice that any information doesn’t look right then get it amended. This could be affecting your score negatively.
• Accounts – make sure you/your accountant files full correct accounts to Companies House and they are filed on time. Lenders will be monitoring this.
• Open a business bank account – don’t just rely on your personal one. This is often a minimum requirement of lenders.
• Pay your bills on time – make sure your debtors (those who owe you money) pay you on time. You can then pay all your creditors (those who you owe money to) on time. Lenders will look at this when assessing your cash flow.
• Be selective about closing accounts – Cancelling unused cards can reduce fraud risk, but having unused credit available is often viewed favourably by lenders. 
• Watch your personal finances – it’s all related. Data on your personal file may be used to determine your business creditworthiness. 
• County Court Judgements (CCJs) – avoid CCJs and pay them on time should they occur
• Don’t make lots of credit applications – If you’re rejected for credit, don’t immediately apply to another lender. Lots of credit applications on your report can be looked at negatively by potential lenders.

Where can I check my credit report?

If you want anymore information on your business report or business credit score, the main credit agencies for you to visit are:

1. Experian
2. Equifax
3. CreditSafe

Reading and understanding your credit report can be tricky. Don’t let that put you off keeping up to date with your report and feel free to ask your chosen agency any questions.

If you’re looking for finance, Funding Circle offers a range of products tailored to small businesses, including business loans, business credit cards and asset finance.

This article is for informative purposes only and should not be considered financial advice. Funding Circle is not authorised to and does not give financial, regulatory, legal or tax advice. If you have further questions please speak to an independent financial advisor.