Table of Contents
- What is a business credit score?
- What does my business credit score mean?
- How to check your business credit score
- How will a poor credit score affect my business?
- Does my personal credit score affect business borrowing?
- How can I improve my business credit score?
- How do bad credit business loans work?
- Can I get a business credit card with a poor business credit score?
Whenever your business applies to borrow money – whether in the form of a business loan, a business credit card, or any other form of financing – prospective lenders are likely to check your business credit score before making a decision.
Your business credit score is a number which tells lenders how safe or risky it might be to lend money to your company.
As long as your business pays its invoices and creditors on time – in other words, if the business is run responsibly and borrows sensibly – your business credit score should improve. Miss any payments or default on your debts, however, and your business credit score will suffer.
You should know that this score is distinct from your personal credit score. However, both could come into consideration if you apply for business finance and your company is on the smaller side or hasn’t been trading for a long time.
What is a business credit score?
Your business credit score measures the creditworthiness of your business – in other words, it measures how likely it is that your business will repay its debts. For potential lenders, your business credit score shows how much of a risk it could be to lend to your business.
Even though they work in similar ways, you shouldn’t confuse your personal credit score and your business credit score.
Your personal credit score tells lenders about your personal creditworthiness – i.e., whether you, as an individual, have borrowed money responsibly and paid your debts in the past. In much the same way, your business credit score measures the creditworthiness of your business.
Strong business credit scores tend to indicate a history of reliable business borrowing and responsible financial management. Generally speaking, the better your business credit score, the easier it will be to access finance with lower interest rates, lower APR, higher credit limits and the best offers, rewards and deals, since lenders will see less risk in dealing with your company.
What does my business credit score mean?
Credit agencies like Experian, Credit Passport, Creditsafe, and Dun & Bradstreet keep tabs on your business borrowing and payment performance and will each calculate their own credit score for your company. Although they’re all measuring roughly the same things, you may find that your business credit score varies slightly from one agency to the next.
With most credit agencies, your business credit score will be a number between 0 and 100. The lower the number, the greater the risk associated with lending to your business. Higher numbers indicate the business is a safer bet for lenders.
If your business has a poor credit score, lenders may ask for extra information or a personal guarantee before lending to your business. Some lenders may be put off from financing your business altogether.
Generally speaking, lenders will want to see a business credit score of at least 40. Even so, if your business is barely over this threshold, you could be asked to provide additional information or jump through extra hoops before you can access business finance. You may also find you’re not eligible for the best deals.
What’s a good business credit score?
A business credit score of 80 or more is generally considered excellent. This shows lenders that your business is a low-risk borrower, which will make it easier for your business to borrow money.
Certain financial products, like business charge cards, may only be available to businesses with a strong credit score. If your business credit score is at 80 or higher, you could also be eligible for business loans and business credit cards with lower interest rates.
How to check your business credit score
Each of the main credit rating agencies has its own way of calculating and displaying business credit scores. Since different lenders could run checks with different credit agencies, it’s good to get an idea of your business credit score across several agencies if you can.
To check your business credit score, go directly to the credit agencies. While it’s generally free to check your personal credit score, you might typically have to pay to see the score associated with your business.
How to check your business credit score for free
Often, credit agencies will ask you to sign up for a monthly subscription to access your business credit score and other information they have on file.
However, you may find that some credit agencies offer a free trial of this subscription service, which will allow you to check your credit score for free (provided you cancel the trial before the first billing period).
How will a poor credit score affect my business?
If your company has a poor credit score, it’s less likely that any application for a business credit card or business loan will be accepted.
With a poor credit score, your business may find itself ineligible for certain financial products. Even if your application is approved, you could also face higher interest rates and lower borrowing or credit limits.
Conversely, if your business has a good credit score, then you may find that your business is eligible for a greater number of financial products with more competitive interest rates.
And it isn’t just lending terms that could be helped by having a good credit score. Unlike personal credit scores, business credit scores can be viewed by anyone – including customers, suppliers and potential business partners.
Other firms may feel more confident dealing with your company if it has a strong credit history. This is because a poor credit history can indicate that a company is in financial trouble and is in danger of going bust.
Companies with strong credit scores could also benefit from lower business insurance premiums, more favourable terms with suppliers, and better lease terms on essential equipment such as machinery or property.
Does my personal credit score affect business borrowing?
In some cases, lenders may consider your personal credit score – as well as your business credit score – when deciding whether to lend to your company.
If your business is fairly new and doesn’t have an established credit history, lenders could look at your personal credit score when making their decision. If your business is on the smaller side – with fewer than three directors – your personal credit score could also come into play.
Similarly, if you’re a sole trader, you are more likely to have your personal credit file pulled by lenders weighing up the risks of providing credit to your business.
You should know that if business lenders repeatedly check your personal credit history, your personal credit score could suffer a temporary drop. This is because the so-called ‘hard’ checks carried out by lenders can harm your credit score, with repeated checks in quick succession having a more pronounced effect.
How can I improve my business credit score?
Various factors can influence your business credit score. As well as your company’s past payment performance, credit agencies will also look at whether your business has filed its accounts in full and on time.
As you would expect, County Court Judgements (CCJs) and insolvency proceedings against your business will harm your business credit score.
The good news is that there are things you can do to improve your business credit score:
Pay bills and invoices on time
If you have any late or missed payments on your account, your credit score will pay the price.
Ensure the information on file is correct
Checking that all the information on your business credit report is accurate and up to date means you can quickly correct any errors which could be hurting your score.
Check your score regularly
By keeping an eye on your business credit score, you can see what actions or events have affected your score. Again, if your score has been harmed by wrong information, you’ll be able to correct it quickly.
Deal with CCJs straight away
If you are ordered to pay off a debt, you should do so as quickly as possible to reduce further damage to your business credit score.
File your company accounts on time
If your business is late filing its accounts with Companies House, this is likely to harm your business credit score.
Do not repeatedly apply for credit
Whenever you apply for business credit, lenders will conduct a ‘hard’ check on your credit file, which will be visible to other lenders and may temporarily harm your business credit score. Making several applications in a short space of time will result in multiple ‘hard’ credit checks in quick succession. This could harm your business credit score and signify to potential lenders that your company is in financial difficulty.
Manage business debt responsibly
Having some well-managed debt or a properly-used credit facility is good for your business credit rating. It’s hard for credit agencies to evaluate how good you are at managing debt without it.
Keep on top of your utilisation ratio
Your credit utilisation ratio is a measure of how much debt your business has compared to the total amount of credit available. Try to keep this ratio low, because using a large proportion of your available credit can hurt your business credit score.
Stay in control of your personal finances
While business credit scores and personal credit scores are separate, some lenders will take both scores into account. Stay on top of your personal credit score to maximise your chances of being approved for business borrowing.
How long will it take to improve my business credit score?
While it’s understandable that you might want to fix a poor credit score instantly, it takes time for your actions to filter through to the credit rating agencies.
If you pay off a business credit card, for example, it could take a month or more before this is reflected with a boost to your business credit score.
How do bad credit business loans work?
A poor business credit score can make it harder to secure business funding – including business loans.
However, just because your business has a poor credit score, that doesn’t mean it’ll be impossible to access the capital you need to grow your business.
Some business loan lenders specialise in bad credit business loans, which allow business owners with poor credit ratings to access business finance. In these cases, lenders may ask you to provide a personal guarantee – which is essentially a promise that you, as an individual, will cover your business’s debts if your business defaults or becomes insolvent.
If, on the other hand, your business is very new – meaning you haven’t had time to build up any business credit history at all – you can always consider start up business loans, which are designed specifically for new businesses.
Can I get a business credit card with a poor business credit score?
Like business loans, business credit cards will be easier to access if you have a strong business credit score. Similarly, those cards with the best interest rates and most generous rewards may be reserved for firms with an excellent credit history.
However, there are some bad credit business credit cards on the market that are designed for businesses with a troubled credit history – or for those which are just starting out and so have no credit history at all.
You may find that regardless of your business credit score, you’re unlikely to be approved for a business credit card unless you provide a personal guarantee.
In many cases, your personal credit score may also be a factor when lenders are deciding whether to approve your business for a credit card.
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