How to improve your business credit score in 9 easy steps
How does a business credit score work?
There are a variety of credit reference agencies (CRAs) in the UK that collect and maintain information about individuals’ and businesses’ credit behavior.
A business’s credit profile is based on five different elements recorded by these CRAs.
- Payment history
- How much debt you owe
- The time period in which you held credit, and for how long
- What kind of finance you have
- Recent finance applications you’ve made
Business credit scores are derived by the CRAs from the elements mentioned above.
Experian, for example, has a score between 0 and 100.
Scores of zero indicate a high risk, while scores of 100 indicate very low risk.
Therefore, your business credit score is a measure of your creditworthiness.
This determines your business’s financial position and risk level by examining a number of factors.
What are the benefits of having a good credit score?
Banks will look at your personal and business circumstances along with your financial history whenever you apply for a loan.
Banks often use credit reference agency data as part of their evaluation of your business, which is a crucial step in assessing your business.
Trade credit lenders and other lenders also use credit reference information.
What can I do to improve my credit score?
It is important for you to understand that credit scores are complex statistical models designed to predict credit risk.
As such, there is no guaranteed way to improve your business credit score.
You can, however, take the following steps (this is not an exhaustive list):
- Limited companies should file full accounts instead of abbreviated accounts with Companies House.
- You can affect the credit score of your business by paying your bills on time, just as you can with your personal accounts. Get into the habit of paying your bills on time to avoid any negative repercussions.
- Ensure you’ve got enough money in your account, or as an approved overdraft limit, to cover any payments you owe (checks, standing orders, direct debits, debit cards, and online payments).
- Ensure that your personal finances are in good shape. In the case of a start-up with little financial data available, lenders may determine your business credit score using data from your personal accounts.
- Don’t apply for credit unless you absolutely need it. Taking the time to research financing options can be tempting, but applying too many times in a short period of time will result in ‘multiple searches’ (also known as ‘footprints’) suggesting you are having difficulty securing funding. Additionally, your business’s credit record can be checked, which can affect your credit score. Inquire about financing before submitting an application.
- Make sure you collaborate with your suppliers. Credit reference agencies may also be able to receive payment record information from your supplier if you have a good working relationship.
- You should notify suppliers and customers, as well as organisations such as Companies House, as soon as possible if any of your information changes (such as your registered office address).
- Make the most of your business bank account by regularly using it over an extended period of time. You shouldn’t pay business receipts into your personal bank account, for example.
- Keep track of business credit scores of your partners, suppliers, and customers, since their financial difficulties may affect your own.
You should also be aware that CCJs and High Court judgments may adversely affect your business and personal credit ratings.
Partnering With a Small Business Loan Specialist
Small business financing specialists such as the team at First Oak Capital can help you find the right asset and cash flow finance products for your business’s needs. Get in touch with our team at 0800 066 3677 or get a quote to get started today!
