Your business credit score plays an important role in your company’s ability to get the finance it needs to grow and flourish.
Lenders look at your business’s credit score to work out how creditworthy you are. A good score can help you access favourable business loan terms and means your application has a better chance of being accepted.
This guide explains how your business credit score works and what you can do to improve it.
What is your business credit score?
Your business credit score shows credit lenders how reliable you have been as a borrower in the past. They use this information to assess your likelihood of keeping up with your payments and decide whether or not to lend to you.
Your business credit score is a number or letter that will vary depending on the credit reference agency. Experian, for example, uses a scale from 0 to 100, with 0 indicating a very high-risk business and 100 indicating a very low-risk business.
Other agencies use different scoring systems. For example, Credit Passport uses a rating scale of A++ to E, with A++ indicating an excellent credit rating.
Your rating is based on the information the credit reference agency has collected on your business. This includes details of how you have managed credit, information about the directors, and your filed accounts.
What is a good business credit score?
What represents a good score depends on the agency, but as a rule, the closer your score is to 100 (or A++), the better. Here’s an overview of how Experian’s score breaks down:
- Low risk – 80 to 100: If your Experian business credit score is over 80, it is considered excellent. This will help you get access to the best financial products and deals.
- Medium risk – 40 to 80: If your score is in the medium risk range, you may need to provide extra information as part of your application to prove your creditworthiness.
- High risk – 0 to 40: Some lenders may not consider your application if your credit score is below 40. You will probably need to supply extra information to be accepted, and you will be offered less favourable terms.
Although your score may differ between agencies, you will probably fall into the same category across all of them.
How is your business credit score calculated?
Business credit agencies use the information they hold about you to calculate your credit score. The information they collect includes:
- Business information: This includes formation date, registration number, registered address, web address and industry sector.
- Accounts: Any account information your business has filed, including company financials, cash flow, profit and loss and assets.
- Director information: Personal details of the company’s directors, including their name, address, date appointed and nationality.
- Public records: This includes details of any county court judgements (CCJs) or insolvency proceedings against the business.
- Payment history: Agencies look at what borrowing you have applied for and your business’s current credit facilities. This will also involve looking at how good you are repaying these facilities.
Each agency will have its own way of calculating your score from the information it holds; for example, Experian uses a statistically derived algorithm.
Is a business credit score different to a personal credit score?
Yes, your business and consumer credit scores are completely separate, and they measure different things.
Your personal credit score measures how likely you are as an individual consumer to repay debt, and your business score does the same thing but specifically for your company.
When applying for a business loan, some lenders will also consider your personal credit score when deciding whether or not to lend to you.
Sole traders and partnerships are personally liable for business debts, so the lender will want to understand how you have personally managed credit in the past.
How to check your business credit score
You can submit a request via the agency’s website to see your business credit report and check what information is held about your company.
You can get a free business credit report from most agencies, but sometimes, there may be a small fee to pay. If the agency doesn’t have an online facility, you may need to request your report by post.
Some agencies also offer a subscription that provides more detailed information and insights, including the ability to monitor your score in real-time and see what is affecting it.
How to improve your business credit score
Your business credit score can play an important role in your company’s ability to get funding and access the best financial products. A good credit score could mean getting a better interest rate, saving your business thousands of pounds in the long run.
Here are some of the things you can do to improve your business credit score:
- File full accounts and file on time: Filing full rather than abbreviated or micro accounts with Companies House is a good way to improve your credit score. Always file your accounts on time as well, as being late has a huge impact on your credit score.
- Keep details updated: Inform Companies House of any changes to your business details immediately, including your registered address or director’s details.
- Pay on time: Keep up with all your bills, invoices, and credit repayments to demonstrate your ability to manage your business finances.
- Limit applications: Don’t apply for several credit products in a short space of time, as this may indicate to lenders that you may be desperate for funding.
- Public records: Keep on top of any CCJs, disputes, and winding up petitions. This can have a huge impact if they aren’t paid on time.
- Use business finance: If you are just starting out, avoid using your personal credit and open a business bank account as soon as possible to start building a positive business credit history.
