Your business credit score is key when you are looking to grow your business and expand into new markets, which will help when it comes to making applications for funding.
Yet, according to a survey commissioned by Experian, 59% of small business owners had never checked their credit score. This suggests that some businesses could be failing to manage their credit rating, perhaps taking a backseat when other tasks such as looking at new premises, growing the team or trying to source funding for business equipment.
But how do businesses manage and improve their credit score? In this article, we outline how to check your score and some tips on increasing it so that your business is more likely to obtain the funds it needs to grow.
What is a business credit score?
Business credit scores are used by lenders to determine the likelihood of businesses repaying loans and other forms of finance. Similar to personal credit scores, they are based on your financial history.
A good business credit score is crucial, as it demonstrates that you have a stable business and allows access to finance on better, more competitive terms.
A poor credit score, on the other hand, can mean that you might struggle to find finance or could be offered higher interest rates for the finance you are eligible for.
How to check your business credit score
Your business credit score is calculated by a credit reporting agency (CRA), such as Equifax or Experian, usually on a scale of 1 to 100. Each one uses its own methodology and scoring system, looking at your business’ repayment history and outstanding debts. Different lenders, in turn, will use different reporting companies when checking your score. Your business, in other words, has multiple credit scores.
In order to find out what these are, you would need to contact the credit reporting companies. These often work on a subscription model, allowing access to your credit reports online. It can be worth checking with a number of companies to ensure better success and highlight any potential errors or negative influences.
How to improve your business credit score
First things first, you can’t improve your business credit score overnight. Improving your credit score ultimately comes down to three main areas; solid information, good financial management and regular reviewing. If you are looking to improve your business credit score, the following are tips to take into account.
Pay bills promptly
Paying your bills and invoices on time shows that you can manage your debt. Failing to pay on time can damage your credit rating.
Avoid multiple applications for credit
These leave a mark on your credit file which could indicate that your business has financial problems or is struggling to find funding.
Review your credit reports
There can be errors and, if you find these, correcting them will help your score. Inform customers, suppliers and CRAs about any changes to your business, such as its location or status. Missing information can affect your credit score as much as negative information.
Avoid County Court Judgements (CCJs)
CCJs can have a major effect on your score – avoid things getting to this outcome where possible and ensure you pay them on time if they do occur. These are likely to occur if you regularly miss payments or owe a significant amount of money to a supplier.
Be careful with your personal finances
For sole proprietorships, your personal financial history may be used instead of company data for credit scoring purposes until your business is more established.