Six useful tips to improve your business credit score
If you're looking for lower interest rates and more lender choices, a good business credit score is essential. Here are some top tips from JAMES TARR for improving it.
Your business credit score is a way for lenders and suppliers to evaluate your business' creditworthiness. This score usually ranges from 0-100, with 0 being a very high-risk company and 100 being low risk. There are three main Credit Reference Agencies (CRAs) in the UK: Experian, TransUnion and Equifax. These CRAs collect various pieces of financial information on your business, such as payment history, debt history, how long credit has been held for and what type of credit your business has received.
This score is an overall indicator of the financial health of your business and provides users with information on how your business has handled credit in the past, and whether your bills get paid on time.
Why should I improve my business credit score?
If you are a sole trader, lenders will access your personal credit score to evaluate the financial health of your business. Many of the tips below are relevant to improving a personal credit score.
Experian estimates, however, that almost 90% of business owners aren't aware of what comprises the score for their company. The credit score of limited companies is tracked independently.
It is very beneficial to spend time improving your business' score, as a high score can make it easier to acquire funding and can also help secure lower interest rates on credit, saving you money in the long run. On top of the direct financial benefit, clients may check your credit reports in the process of due diligence before engaging with your business, so it's important to stay on top of it.
How can I improve my score?
Here are six useful tips to improve your business credit score:
- First of all, the most obvious suggestion: make sure you pay your bills on time. Your business can be marked with late payment markers if not, which may remain in place for up to six years. This tip goes hand in hand with ensuring your balances are paid off each month – having high amounts of outstanding debt for too long will negatively affect your credit score. Always make sure there is adequate money in your account to avoid failed payments, such as direct debits, or exceeding your overdraft limit.
- Employ an accountant – this is a great sign that your business will stay on top of payments and administrative matters. CRAs will also look at whether your accounts have been audited, as this will be a strong indicator of the quality of information in your accounts. An accountant can use their knowledge and experience to ensure you are following the other tips on this list.
- Keep your business information up to date. A way to achieve this is to make sure your accounts are filed with Companies House on time, and that any changes to details such as your registered address are updated promptly. Not filing on time can be interpreted as an indication of a disorganised business with potential financial problems. Your business credit score will benefit from regularly sharing information with CRAs. On a similar note, keeping a good relationship with suppliers will aid this sharing of information, as you can ask them to give feedback on your credit history with them and share data on your payment record.
- Limit your credit applications. Too many applications for credit within a short timeframe can suggest to CRAs that it is difficult for you to acquire credit. This data is fed through their statistical models and can result in a negative effect on your credit score. A tip here when searching for finance: request a quote instead of submitting a full application, as this will avoid the multiple searches on your business' credit history which could damage your business credit score.
- Use your business bank account as much as possible. This will allow you to build up a good track record directly attributable to your business. This being said, it is important not to forget about keeping your personal finances in check, as if there is not much available information on your business, lenders may look at your personal credit history.
- Sign up with the three main CRAs online to view your credit reports. Here, you can check for unpaid balances or any inaccuracies in the information they hold on your business. It is also useful to stay up to date with the credit score of your business partners, clients and suppliers, as any negative reports here can have knock-on effects on your business.
Going forward
Remember to check your business credit score regularly, but keep in mind that building up a good credit score can take time and requires diligence and patience. Rest assured, however, that by observing these six essential tips you will certainly be on your way to building up a respectable business credit score.
If you need any further business advice, our team can help. Please contact our advisory team on 0115 955 5500 or email enquiries@pagekirk.co.uk