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Business Credit Score: Why It Matters and How to Improve It

A strong business credit score is a vital asset for any company, measuring its financial credibility and stability. If you are concerned about your business’s financial future, then you may be missing vital information on your business credit score. To help you understand what your credit score means and how it can affect your business funding now and in the future, we have compiled an extensive guide on why it matters and how to improve it. 

What is a Business Credit Score?

A business credit score is the measure of a business’s creditworthiness. This means the financial status and, in turn, the financial risk associated with a business and its impact on potential funding. For the most part, this is similar to personal credit scores. However, it is not as widely known. In fact, credit reference agency Experian has estimated that two-thirds of business owners in the UK did not know they had a business credit score. 

A business credit score is measured between 0 and 100; the higher the number, the lower the financial risk associated with your business. So, what impacts your business credit score?

Factors that Impact Business Credit Scores

Several factors have the potential to significantly affect your business credit score and ability to apply for finance in the future. These include:

  • Personal credit scores of shareholders/directors 
  • Business trading history 
  • Turnover 
  • Profit 
  • Recently filed accounts 
  • Payment history 
  • Number of past credit applications 

Why Your Score Matters

Business credit scores play a crucial role in shaping financial decision-making for enterprises. As we have mentioned, these scores are a vital indicator of a company’s creditworthiness and financial reliability. This means that lenders, suppliers, and business associates rely on these scores to assess your business’s financial health and risk profile. A robust credit score can pave the way for advantageous loan terms, strengthened supplier relationships, and reduced insurance premiums. 

Impact on Loan Applications 

When it comes to loan applications, a poor business credit score can significantly impact the outcome. Lenders view a low credit score as an indication of heightened financial risk, raising concerns about a business’s ability to repay debts in a timely manner. 

Loan applications from enterprises with poor credit scores may face higher interest rates, stricter terms, or even outright rejection. The negative impact of a bad business credit score extends beyond the loan itself, as it can hinder future borrowing opportunities and limit access to capital for growth and expansion. 

Supplier Relationships

The influence of a business credit score extends beyond loan applications to impact supplier relationships and trade credit terms. Suppliers often use credit scores to assess their potential customers’ creditworthiness and payment history. A poor business credit score can lead to strained relationships with suppliers, as they may view the business as having a higher credit risk. This can result in less favourable trade credit terms, such as shorter payment terms, higher interest rates, or even the requirement of upfront payments. 

On the other hand, a strong credit score can foster trust and confidence, leading to more flexible payment terms, larger credit limits, and potential discounts. Therefore, maintaining a solid business credit score is vital for cultivating positive supplier relationships and accessing advantageous trade credit terms, ultimately contributing to a smoother and more prosperous business operation.

How to Improve Your Business Credit Score

If you are concerned about a poor business credit score, there are ways to improve it. However, this takes time and patience to improve it. 

Establishing and Maintaining a Strong Payment History

By maintaining a strong payment history, you can improve payment performance, which will help boost your credit score. To do this, you must avoid late or missed payments, which will also ensure you can avoid potential CCJs or insolvency proceedings. To improve business credit faster in this way, you can also request your suppliers or business partners to share payment information on your behalf with credit reference agencies. 

Managing Credit Utilisation and Debt-to-Credit Ratio

Managing credit utilisation effectively can positively impact improving a business’s credit score. Businesses demonstrate responsible and disciplined borrowing practices by keeping credit utilisation ratios low. This indicates a reduced level of financial risk to lenders and credit bureaus. Maintaining a healthy balance between available credit and credit utilisation showcases a business’s ability to manage its debt obligations and signals financial stability.

Building Positive Credit Relationships

A strong business credit score serves as a foundation for establishing and nurturing positive relationships with creditors over time. You can strengthen this trust with creditors and partners, by regularly monitoring your business credit score and taking action to identify and resolve any errors or issues. This attention to detail and a commitment to ensuring accurate financial information can help you to gain the trust and confidence of lenders. 

Strategies for Managing and Maintaining a Good Business Credit Score

Now we have established factors that affect and improve your business credit score, how can you put strategic actions into place to manage and maintain your business credit score?

Monitoring your Business Credit Score Regularly

By staying vigilant and checking your credit score, businesses can promptly identify any errors or inaccuracies in their credit reports and take the necessary steps to rectify them. Additionally, monitoring the credit score allows businesses to track their progress, identify areas for improvement, and make informed decisions regarding credit utilisation and debt management.

Avoiding Excessive Credit Applications and Managing Credit Inquiries

Avoiding excessive credit applications is essential for maintaining a good business credit score. Each credit application triggers a hard inquiry on the credit report, which can temporarily lower the credit score. By being selective and strategic with credit applications, businesses can minimise the negative impact on their credit profile. Instead, focusing on targeted applications for credit that align with the company’s financial needs can help maintain a positive credit history.

Reviewing and addressing negative factors impacting your score

Businesses can actively work towards strengthening their creditworthiness by identifying and resolving negative factors impacting their business credit scores, such as;

  • late payments, 
  • high credit utilisation, or 
  • outstanding debts. 

Timely payments, reducing credit balances, and negotiating payment plans for outstanding debts can help rebuild a positive credit history. Proactively addressing these negative factors prevents further damage to the credit score and demonstrates a commitment to responsible financial management.

Expert Advice on Your Business Credit Score

If you’re concerned about your business’s financial future, understanding your business credit score is the first step to taking control of your company’s projections. We hope you have found some useful information on your business credit score guide to help you plan your next steps. 

If you’re still unsure, you can contact us today, and one of our financial experts will be happy to offer advice and guidance. 

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News & Articles FAQs

Do business credit cards affect credit scores?

Yes, business credit cards can affect a business credit score. Similar to personal credit cards, the usage and management of business credit cards can impact the creditworthiness of a business. Timely payments, responsible credit utilisation, and maintaining a low credit card balance can positively influence the business credit score.

Does my personal credit score affect my business credit?

Yes, your personal credit score can have an impact on your business credit, particularly for small businesses. Your personal credit history, including factors such as payment history and credit utilisation, can influence the approval and terms of business loans, business credit cards, and other forms of business credit. However, it’s important to note that as your business grows and establishes its own credit history, the impact of your personal credit on your business credit may diminish.

Does applying for a business loan affect credit score?

Yes, applying for a business loan can have an impact on your credit score. When you apply for a loan, lenders will typically perform a hard inquiry on your credit report, which can result in a slight temporary decrease in your credit score. However, the impact is usually minor and short-lived. It’s important to consider your loan applications carefully and only apply for loans that you genuinely need and can manage responsibly. Multiple loan applications within a short period can raise concerns for lenders and may negatively impact your credit score.