Growing and maintaining a good business credit score is key to business growth and success, particularly in times of economic uncertainty.
It can help you access the finance you need, win contracts, and secure the best deals and interest rates on financial products such as loans, credit cards, and insurance.
In this short guide, we explain what a business credit score is and how it’s calculated, and give some general tips on how to improve it.
What is a business credit score?
A business credit score provides a snapshot of a company's creditworthiness and financial health. It is used by lenders and often investors, suppliers, partners, and customers to help assess the risk of providing credit or entering into a financial agreement with a business.
The score typically ranges from 0 to 100, with a higher score indicating lower financial risk. Credit scores are calculated by credit reference agencies (CRAs) - independent organisations that securely collect and store information about consumers’ and business’s borrowing and financial behaviour. There are three main CRAs in the UK: Equifax, Experian, and TransUnion. Lenders, suppliers, and other entities use the information provided by the CRAs to help them decide which customers they can responsibly lend to or work with.
How is a business credit score calculated?
The information and criteria that each of the CRAs use to calculate business credit scores are slightly different. However, a few factors that affect the score may include:
Filing of accounts
Credit history, including payment of bills, the credit you have used/applied for, and outstanding debt
Any County Court Judgements (CCJs) or insolvency proceedings made against your business
The industry that the business operates in
How to improve a business credit score
There are a number of steps you can take to improve your business credit score. We’ve outlined a few below to help you get started. Please note that this list isn’t exhaustive and won’t guarantee an improvement in your business credit score.
Pay suppliers, lenders, and bills on time
This will help you strengthen your credit score and avoid negative consequences that can result from missed payments, such as a CCJ, which can be detrimental to your score. It will also help you to build good relationships with your suppliers and partners.
File full accounts
If you’re a limited company, it’s more beneficial to file full accounts, rather than abridged or micro-entity accounts. Submitting full accounts on time and in line with guidelines can lead to a better credit score.
Limit credit applications
Try to avoid applying for a lot of credit in a short space of time as business credit checks are visible to other lenders. Some lenders may have limits on the number of checks they consider acceptable in a short period.
Keep track of your score
Check your business credit score regularly to monitor your progress and identify any potential errors or fraud quickly.
Check credit scores of partners, suppliers, and clients
It can be a good idea to check the credit score of businesses you are currently working with or planning to work with in the future, such as partners, suppliers, and clients. This can help you identify if they are financially stable and likely to make payments on time. You will then be able to make informed decisions about whether to work with a particular business or what payment and invoicing terms to offer, helping to protect your own cash flow and credit score.
Protect your personal credit
Personal credit scores and business credit scores are usually separate and don’t tend to affect each other. However, there are some cases in which your personal credit score may affect your business credit score. For sole traders particularly, the two are closely linked, and lenders are likely to look at your personal credit record as well as your business record. If you’re operating as a limited company, it’s less likely that your personal credit score will have an impact on your business credit score. However, if a company is new and has little or no financial history, then some lenders might look at personal credit score.
Dispute errors on your credit report
An error or mistake on your credit report could have a negative effect on your business credit score, so it’s always a good idea to keep an eye on your score and report. If you believe that there is a mistake, such as an inaccurate account or a payment that was reported as late when you paid it on time, then disputing it and getting the error removed could help to improve your credit score. Each CRA has its own procedure for filing disputes – you can find more information on their websites below: