The importance of your business credit score  and what you can do about it
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The importance of your business credit score and what you can do about it

Every adult in the UK with any kind of financial history will have a credit report and for each credit reference agency that holds this data, a credit score will be attributed to that person. This is largely based on the information held about past and current financial behaviour.

The scores can vary between credit reference agencies, as they often have different scales for the score itself and can also use different criteria for assessing the data they hold.

The credit file data (rather than the actual score) is used by lenders to help determine the risk level of each individual for borrowing and can affect whether that person can borrow at all, or the credit limit and interest rates they are offered for financial products. This could be anything from a mortgage or bank loan to a mobile phone contract or even purchasing a new sofa on credit.

The same is true for businesses, with a credit rating/score being attributed to a company or organisation based on their history with borrowing and managing their finances. This credit rating can affect day-to-day business matters, such as purchasing insurance policies or negotiating service or supplier contracts, in addition to lending decisions such as business loans.

Usually, business credit scores are on a scale of 0-100, with 100 being a perfect credit score. However, as mentioned above, the actual score is not the most important part of your credit file.

What factors have an impact on business credit scores?

Any kind of financial history or behaviour can have an impact on your business credit score, including:

  • Your payment history to other companies e.g. paying utility bills, rent/business rates and paying invoices on time
  • The length of time your business has been operating (new businesses won’t have an extensive credit history from the start so this can mean your rating is lower despite no negative financial behaviour/history
  • Whether your business has any County Court Judgements (CCJs) against it
  • The amount of credit that you currently have, especially in relation to turnover
  • The data/accounts held on your business by Companies House
  • The number of company credit checks your business has had recently

Every credit reference agency will have their own unique way of taking this data into account and calculating a business credit score, but for any company, the actual score isn’t the most important part. Potential lenders don’t see the score given by the credit reference agency, they instead see the data behind it, and make their own lending decisions based on this. Therefore, for any business, the most important factor to think about is the financial information held on file about you. Business loan calculators can help you get an understanding of how much cash you could be lent based on your financial circumstances – find out how much cash you could raise today with Capify’s business loans calculator.

Who carries out company credit checks?

There are many companies offering company credit checks to businesses who wish to check either their own credit rating or want to check on another company before they enter into an agreement with them. Generally, they charge for this service, although some offer you a free check of your own business credit rating and charge if you want to run checks on other companies.

You can go directly to the credit reference agencies themselves if you want to check your own business credit file. The three main agencies in the UK are Experian, Equifax and Creditsafe.

Am I eligible for business loans with a bad credit score or rating?
If you want to borrow money for your business but you have a poor credit rating, it can mean that some lenders will consider you too great a risk for them to offer a loan to. Every lender has their own criteria for assessing risk, but businesses that have missed or late payments in their recent history, have CCJs against them, have out of date or incorrect details on their file, or are simply too new to have much credit history at all, can find that they might be turned down for a loan.

Some lenders will essentially use algorithms to make lending decisions based on business credit histories alone, but others will manually take other circumstances into account to give them a more rounded picture of the company’s financial circumstances and behaviour and can provide a more personalised decision as a result.

At Capify, we look at a range of different information before making a decision on business loan applications for sums from £10,000 to £500,000. We take current cash flow and financial health and behaviour into account, as well as historical information, in a way that many lenders do not, which enables us to provide a personalised service to businesses looking for a loan who may not always have a perfect business credit score.

Find out more about bad credit business loans.

Improving your business’ credit rating

If you have checked your company’s credit file and think that you need to work on improving some elements to help you gain credit in the future, there are several things that you can take action on, including:

Ensure all details held about your business are 100% correct and check regularly to make sure it stays that way

Inaccuracies on your business credit file could mean that your company is incorrectly associated with a wrong address, an account that hasn’t been updated by the other party or another type of issue that can sometimes reflect badly on your business credit rating. You can usually file for a correction to be made with the credit reference agency that holds the information.

Pay your bills on time, or early if possible

Making sure that your bills and invoices are paid by their due date, and preferably earlier, is a good way to ensure that you don’t accidentally miss a payment or leave it too late for the money to go through before the deadline.

Be careful about making credit applications

Every time your business applies for credit, a credit check will usually be performed on your company, which is noted on your credit file. Having several credit checks on your file in a fairly short space of time can be a red flag for many lenders. Some lenders now enable you to do a ‘soft’ credit check, often called an eligibility check, which will not leave the same kind of mark on your file and should give a good indication of whether your application is likely to be accepted or not. Check your eligibility for a Capify business loan here without affecting your credit score.

Build reserves to help manage cash flow

Finding yourself unexpectedly unable to pay bills on time due to cash flow problems can cause problems for your credit file, so having a good level of reserves to prevent this provides a good layer of protection for your credit report. Take a look at our guide to cash flow and how much you should have in the bank.

Look at affordable borrowing to help build a positive credit history

If you already have some poor credit issues with your report, or don’t have a long company financial history to prove that you can manage borrowing responsibly, you may want to look at taking out a small business loan that could be used for any number of different business purposes, as the repayments made can help to build a positive rating over time. It’s important that any company ensures they can manage repayments before taking out a small business loan, otherwise any late or missed payments can have a negative impact on credit ratings.

Find out more about small business loans and what they can be used for, or take a look at our business loan FAQs if you’re looking for more information about the application process.