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How to Improve Your Business Credit Score

Business Finance

How to Improve Your Business Credit Score

Updated: 19 October 2021

The ability to access credit or a business loan is a huge advantage, yet many businesses fail to plan for this by maintaining a good business credit score. In fact, according to a British Business Bank article, almost two-thirds of business owners have never even checked their credit score.

Want to know how to improve your business credit score? Keep reading, we’ve outlined five key considerations to set you on the right track.

What is a business credit score?

Just like your personal credit score, your business credit score is a numerical value that determines how attractive you are to lenders. 

There is no ‘universal’ credit score for UK businesses. Instead, there are several credit agencies that may hold a credit score for your business. These include:

  • Experian
  • Equifax
  • CreditSafe
  • Endole

Your credit score will differ slightly from one agency to the next, as they do not all use the same data to calculate scores. There are a wealth of different factors that affect your business credit score. Experian, for instance, compiles credit scores using more than 140 different variables.

However, the basic factors that affect a business’s credit score are:

  • The number of times you have applied for credit, and how recently
  • Whether you pay your bills on time
  • Whether you owe money to suppliers, vendors or creditors
  • The number of years you have been in business
  • Whether you file your business accounts on time

What is considered a bad credit score?

Most agencies represent credit scores with a value between 1 and 100. To use Experian as an example again, their scoring system works as follows:

0 = Failed company

1 = Imminently failing company

2-15 = Maximum risk

16-25 = High risk

25-50 = Above average risk

51-80 = Below average risk

81-90 = Low risk

91-100 = Very low risk

Different credit reference agencies use different scoring systems but one thing is true across the board: the higher the score, the better.

How to improve your credit score

Let’s look at what you can do to keep your credit score in good shape.

  1. Pay your bills on time 

Late or missed payments can seriously dent your credit score. When it comes to ensuring your bills are paid on time, cash flow management is most, if not all, of the battle. If you don’t get paid on time, you may end up without the available funds to pay your bills – it’s as simple as that. 

It goes without saying that the goal of any business is to pay and get paid in a timely fashion, yet many business owners do not use all available tactics to ensure this happens. You may wish to:

  • Set up an accounts payable system to keep on top of due payments
  • Use accounting software to automate outgoing payments
  1. Keep yourself in the loop

You can’t figure out how to improve your business credit score if you don’t monitor your score regularly. It is important to check your credit score as a matter of routine admin, at least once every quarter. 

When checking your credit score, make sure all the information on your report is correct. Mistakes do happen, and even minor business name errors can lead to a bad credit score. Be sure to inform the credit agency immediately if anything looks out of place.

  1. Use your credit, but don’t max it out

Just like your personal credit score, your business credit score will thank you for not utilising all your available credit. However, not having any credit agreements at all can actually harm your score. The key is to use it – but not too much – and to stay on top of payments.

Businesses should also be wary of how often they apply for new credit or loans. Every failed application will appear on your credit record and have a negative impact on your score, for at least a few months.

  1. Make sure payment data is reported

Not all suppliers and vendors automatically share your payment data with credit reference agencies. However, you can guarantee they will if you frequently miss payments! 

In addition to making sure your bills are paid up to date, you should actively encourage your suppliers to share your payment history with credit reference agencies. This will build trust with your suppliers and make sure agencies know when you’re sticking to a payment schedule and are up on top of your bills.

  1. Keep an eye on your personal credit score

Unfortunately, your personal credit score can have a bearing on your business credit score. Though one should not affect the other, lenders may use information about your personal finance history to inform your business credit score if there is not much business data available.

For this reason, it’s wise to keep your personal credit score as healthy as possible. Let’s face it – this is good practice anyway!

The final takeaway

Considering how to improve your business credit score should be a key feature in your overall business strategy, especially if you’re striving for growth. Otherwise, you may not be able to access essential finance when your business needs it most.

Fortunately, you do not need to know the finer details of credit score calculation to keep your score in order. If you pay your bills on time and keep on top of your admin, your business credit score will take care of itself.

While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.

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