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How to improve your business credit score in 8 simple steps

28 February 2018 Small Business Advice

Business credit scores are a notoriously cloudy subject. Nearly 59% of small business owners don’t know their business credit score according to a UK survey. Whether you’re a new business or a company looking to expand, a good or bad business credit score can sometimes be the difference between success and failure.


What is a business credit score?

It’s a popular credit scoring model, a numeric representation of your business based on financial history. A business credit score tells lenders how likely it is a business will repay them on time. Your business credit score is usually a number between 0 and 100. The higher your score, the less risky your business appears. If you’ve missed loan repayments in the past or have failed with credit applications, you might have a poor credit score. A good business credit score means your business has a good record of paying off debts.


Why do I need a good business credit score

A good business credit score can help your business in a number of ways. When you open a business bank account, apply for a loan or insurance policy, a business credit score can impact whether your application is successful and determine what kind of  rates you’re offered.

Benefits of having a good business credit score:

Secure Loans

Lenders prefer funding businesses with good credit. Having a good business credit score can give you more power when deciding who you want to secure loans from.

Access capital

The amount of money you qualify for depends on a number of factors. Lenders will typically examine the purpose for your loan, your existing collateral, your personal credit score and  of course  your business credit score.

Get better interest rates

For example, loans backed by the Small Business Administration charge just 6% APR while other options can cost you 150% APR. However, if your score is bad, you won’t pass the SBA pre-screening process.

Get access to low card processing fees

Many merchant banks run credit checks on your business before setting you up with a merchant account so that your business can accept card payments. A good credit score can give you access to low card processing fees that other providers do not offer.

How is my business credit score calculated?

Your business credit score isn’t a set value. The value will depend on which credit reporting company the lender uses to check your credit score. There are several credit reporting companies who use their own methods and scoring system.

The five main credit reporting companies in the UK are:

  • CreditSafe
  • Dun & Bradstreet
  • Equifax
  • Experian
  • Graydon UK

Generally speaking credit reporting companies will collect payment information from vendors, banks, data-gathering trade associations and business credit card issuers. This information is verified through third parties before your business credit score is calculated. Positive and negative factors are combined to create your score.


How do I find my business credit score?

First, you’ll need to contact a credit reporting company who will calculate your business credit score and send it to you by post or via an online account. If you believe that there are mistakes on your company’s credit report, you can contact the credit reporting company and give evidence of inaccuracies. It’s a good idea to check in with several credit reporting companies. This can give you a clearer picture of your overall financial situation and help you take steps to improve your score.


How can I build a good business credit score?

Establishing a business credit score is an important step for any new small business. It’s best to continue checking your report regularly so you always have a good idea of your finances. You can build a good score with these measures:

  1. Incorporate your business

By incorporating a business and forming an LLC, the business becomes legally separate from the owner. On the other hand, sole proprietorships and general partnerships mean the business is legally the same as the owner with no distinction between business and personal credit history.

  1. Protect Your Personal Credit

As a business owner, it’s important to separate personal and business credit. Maxing out your personal credit cards to fund your business can harm your personal credit score (which can be a useful fallback if your business fails).

  1. Open a business bank account

Once you open a business checking account in the legal business name, be sure to pay the financial transactions of the business from that account.

  1. Consider taking out some business credit

This can be in the form of an overdraft or credit card. Be sure to pay the credit card bill from your business checking account. By staying within  10% of your borrowing revenue, you should see your business and personal credit score improve.

  1. Tap into Trade Credit

Trade credit allows you to buy now and pay later, which can help solve cash flow problems. This can be useful when working with suppliers and vendors.

  1. Pay your bills on time

Paying your bills on time shows that you can effectively manage your debt. Late payments, especially severe ones, can negatively impact your business credit profile.

  1. Close accounts you don’t use anymore.

Your business credit score can weaken if it seems like you have lots of credit available. Lenders tend to frown upon those who have access to too much credit because of the increased opportunity to fall into debt.

  1. Don’t apply for lots of different credit

This can harm your rating. If you’re rejected for business credit, don’t immediately apply to another lender. Always conduct your own thorough research and speak to experts before applying for credit.


Final thoughts…

Building up a strong credit history is hugely beneficial for your business. A big part of running a successful business is building a good reputation. It’s important to keep an eye on your credit rating, this can aid you in applications for additional funds for future growth. If you’re a start-up businesses, a strong credit history can help you through those tricky early years.

It’s imperative that your business credit reports are completely accurate. Missing information can count against you. It can be worth notifying the credit reference agency about your business, telling them the number of employees or start-up capital you have.

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