Understanding your business credit score

Read time: 7 mins        Added date: 05/12/2023

We explain what a business credit score is, why it matters and how you can improve it.

Getting approval for lending is often a key part of running a business, whether it’s for a brand-new start-up venture or a seasoned enterprise. There are different factors that can affect whether you get the green light for new financial support. One of the most important of these is your business credit score. 

A business credit score is an important indicator for how your business is doing. It tells lenders, other businesses and investors how much of a financial risk your business could be. In turn, this can indicate how eligible you may be for a loan. With almost two thirds of business owners never having checked their business credit score, there’s plenty of opportunity to learn more.

Read on to find out what a company credit score is and what it means for the financial health of your business.

What is a business credit score?

Your business credit score, also known as a company credit score, is used to work out how reliable your business is with credit. It’s used by lenders to help measure your credit history and decide whether to lend you money. Scoring often ranges from 0 to 100, although it can vary depending on the credit reporting agency (CRA). The higher your credit score, the lower the risk you represent. This can potentially mean a better chance of securing further finance.

A business credit score is different to a personal credit score, though they have a similar purpose. Your personal score reflects how you pay back credit, while your business score shows how your business pays back credit.

If you’re starting a small business with fewer than three directors, some lenders may consider both your personal and business credit score to check your financial risk. This is usually the case if your company has little or no existing credit history.

So, it’s a good idea for business owners to keep their personal and business credit scores looking healthy.

What can affect my business credit score?

Business credit scoring can be influenced by various factors, including: 

  • Both your business and your personal credit history. 
  • Whether your business is registered with Companies House. 
  • Your credit providers. Lenders and other service providers report arrears, missed, late or defaulted payments to the credit reference agencies.
  • Whether your business has any CCJs (Count Court Judgements).

How your business score is assessed can vary depending on which CRA or lender you choose. It’s not uncommon to receive different credit scores from different CRAs.

Why your business credit score matters

When you apply for any type of borrowing, lenders may run a credit check on your business. Lenders will use a range of criteria to assess your application, but if you have a good credit score then approval may be more likely. Types of borrowing could include business loans, overdrafts or Asset Finance.

It’s important to build a good credit score over time as it can put you in a stronger position for product applications. For example, you may need finance to help manage fluctuations in cash flow during changeable business periods. Or you might want to secure extra funds to invest in growth to and push your business forward.

Potential suppliers, partners and business clients can also check your company credit score to decide whether to do business with you. Having a low credit score could hold you back by limiting your options. 

There are many reasons why understanding your business credit score and knowing how to check it can work in your favour. It’s also worth bearing in mind that financial risk can go both ways. Credit scoring can help you spot red flags and avoid working with unreliable businesses, keeping you on a more secure financial footing in the long run. 

What is a good business credit score?

The higher your credit score, the more creditworthy you appear. The aim is to get your score as close to 100 (or the highest score) as possible.

Here’s how business credit scoring can look, according to Experian:

  • 80 and above – business credit scores above 80 are often considered excellent, as it means your business is low risk.
  • 40 to 80 – if your credit score is between 40 and 80, you may need to provide extra information to determine your suitability for credit.
  • 40 and below – most lenders look for scores above 40 before agreeing to credit. You may be able to offer additional information if you score is less than 40, but your credit score could still influence the decision. A lower score could turn away potential business opportunities too.

Where can I check my business credit score?

You can check your business credit score with one of the UK credit rating agencies. The main CRAs for businesses are:

  • Experian, which uses a scale of 0 to 100 to determine your financial risk. It may also consider personal credit scores to assess small businesses. 
  • Equifax uses three different scales to give you a company credit score. This includes a payment index score between 1 and 100, a credit risk score between 101 and 992 and a failure risk score between 1,000 and 1,610.

Each CRA will gather important information about you from public records, lenders and other service providers to help them calculate your business credit score.

Just as each credit reference agency can vary, so can your score. Your creditworthiness may change over time with your circumstances.

 

Managing your business

We look at some of the significant aspects of managing a business – including information on cash flow, tax, business protection and employees.

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What can I do to improve my business credit score?

There are various ways to improve your business credit score. Consider some of the following habits and housekeeping tips to help boost your rating and maintain healthy business practices.

Pay promptly

Payment terms are a variation of credit, so always make sure to pay your invoices on time. Any late or missed payments could lead to CCJs or insolvency, which will negatively affect your business credit score.

Register your business with a credit reference agency

Share and update any relevant business information with CRAs. They can inform you on how to improve your chances of securing credit and help protect you from fraud. When you register your information with a CRA, they can alert you if something looks suspicious.

Review your credit report regularly

Keep a watchful eye on your credit report to make sure everything is accurate. That way, if you notice any errors, you can correct or flag them before they impact your credit score.

Keep up to date

Out of date information can paint your business in a negative light. Keep things current when any of your business information changes, such as your business or office address. You should update:

  • HMRC
  • Companies House
  • Suppliers
  • Partners
  • Customers

Submit on time

File your accounts on time and in full to HMRC and Companies House. Any delays could make your business appear like it’s struggling. Follow the guidelines and stick to deadlines to keep your financial status healthy.

Monitor your clients’ and suppliers’ credit positions

Credit scoring can be a helpful indicator for how businesses are doing financially. Monitoring the credit scores of the businesses, suppliers and clients you work with can help you avoid potential issues such as late payments.

Building with credit

Understanding your business credit score and taking steps to nurture its progress is just one way to help your business thrive. 

A positive credit score can help improve the chances of securing lending support when you need it. Boosting your eligibility for finance can help you manage cash flow more effectively and introduce exciting new ventures as you invest in your business.

 

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Understanding your business credit score | Business Guide | Lloyds Bank

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