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As a business, it’s essential to understand how your business credit score works and how it affects your chances of securing finance and negotiating better terms with your suppliers.Ìý  

Key takeaways

• Your business credit score informs lenders and investors about your company’s creditworthiness

• The main business credit reference agencies are Credit Passport, Experian, Equifax, Dun & Bradstreet and Creditsafe

• Business credit scores are usually rated from 0 to 100 and the higher it is, the better

• There’s a range of factors that can influence your credit score and plenty of steps you can take to improve it

• Regularly checking your business credit report helps you track your credit score and spot mistakes on your report.

What is a business credit score?

A business credit score is similar to a personal credit score. However, rather than looking at your personal financial transactions, it focuses on your business transactions and informs lenders and potential investors of your company’s creditworthiness.Ìý

Lenders and investors use this information to determine whether they are willing to let you borrow money or if they should invest in your business.

As with personal credit scores, credit reference agencies (CRA) calculate your business credit score. In the business world, the main UK CRAs are Credit Passport, Experian, Equifax, Dun & Bradstreet and Creditsafe.Ìý

These CRAs compile your credit report and score by looking at how your company has managed its finances in the past, including whether it’s repaid debts and filed its company accounts on time.

Your business credit score can vary depending on the CRA you use, so you won’t have one single credit score.Ìý

Do all businesses have their own credit scores?

Not all businesses have their own credit scores – whether you have one depends on the type of business you operate.

If you’re a sole trader or in a partnership, your personal and business finances are not separate. This means you won’t have a company credit score; instead, lenders will review your personal credit score when you apply for credit.

Limited companies, on the other hand, are separate legal entities from their owners, so all limited companies have a business credit score.Ìý

However, if your business is new, it’s unlikely to have much of a credit history. In such cases, lenders may consider the personal credit histories of the business owners instead.

Why your business credit score matters

Your business credit score is important because it gives lenders and investors a snapshot of your business’ financial health.

Having a good business credit score indicates that you have a history of repaying debts on time. This can help you to secure finance for your company, such as a business loan, but it can also make your business more attractive to investors.Ìý

Some suppliers and companies carry out credit checks before agreeing to work with businesses, so a good credit score can be helpful. It can also enable you to negotiate better deals and win more contracts with bigger clients, which can be hugely beneficial for your business.

By contrast, a low credit score suggests you’ve had problems repaying debts – perhaps you’ve missed repayments in the past or got into financial difficulties.Ìý

Lenders may refuse to lend to you or only let you borrow at a higher interest rate. You could also find it harder to secure funding from investors.Ìý

What is a good business credit score?

Much like a personal credit score, the higher your credit score, the better. However, while a personal credit score can range from 0 to 1,000, business credit scores usually range from 0 to 100.Ìý  

• A score of 80 or over: This is generally considered excellent. It can help you to secure borrowing at competitive interest rates, and encourages investment.Ìý

• A score of between 40 and 80: If your credit score sits at the lower end of this range, you can expect lenders or suppliers to ask for additional information about the business to give them a better understanding of your creditworthiness.Ìý

• A score of between 0 and 40: This is generally considered high risk, and you could find it harder to secure funding, or lenders could charge higher rates.Ìý

You might also come across alphabetical scoring. In this case, a score of A++ is excellent, while a score of E is very poor.Ìý

Key factors that affect your business credit score

There’s a range of factors that can cause your business credit score to increase or decrease. These include:

The accounts you file

It’s important to file your accounts on time with HMRC, whether you’re a sole trader or limited company. CRAs also look at whether you filed your accounts in full, rather than submitting abridged or micro-entity accounts. Filing in full is better for your credit score.

Your payment history

Making debt repayments and paying bills on time is important for your credit score. Missing repayments or paying bills late can have a negative impact on your score.

Length of credit history

A longer credit history generally has a positive effect on your business credit score. A well-established track record of positive financial behaviour works in your favour.

Public records

Insolvency proceedings or County Court Judgments against your business can have a negative impact on your credit score and make it hard to secure credit.Ìý

Credit applications

Making several credit applications in a short space of time can lower your credit score. Lenders might believe you’re struggling to manage your finances if you keep applying for credit and this can make it harder for you to secure business loans or business credit cards.Ìý

How to check your business credit score

You can check your business credit score with any of the CRAs mentioned above. Many CRAs offer free trials, but once your trial has expired, you need to pay a subscription fee to access your business credit report.

Your credit score can vary depending on the CRA you use, as each agency uses a different algorithm to calculate your score.Ìý

If you’re a sole trader, you can check your personal credit score with Equifax, Experian or TransUnion.Ìý

How to improve your business credit score

If your business credit score is low, there are plenty of steps you can take to give it a boost. For example:

Pay bills on time

Staying on top of your financial obligations is a key part of building business credit. Being chased for payments can ultimately lead to insolvency proceedings or CCJs, so it’s crucial to manage business debt sensibly and pay all your bills on time.Ìý

File accounts in full

Filing full accounts, rather than abridged or micro-entity accounts, can result in a higher credit score for your business as it provides more information about your company’s financial health.

Build good customer and supplier relationships

Building trust with your customers and suppliers means they are more likely to pay you on time and offer good trade credit arrangements. You can also ask suppliers to pass on information about your payment record to credit reference agencies, which can help your credit score.Ìý

Space out credit applications

It’s best to spread out credit applications by at least three to six months. Every time you apply for credit, it’s recorded on your credit file and can cause your credit score to temporarily dip. Spacing out applications reduces any impact.Ìý

Where possible, use an eligibility checker first before applying for credit. These searches only carry out soft credit checks that won’t appear on your credit file. They can give you a good indication of how likely you are to get a particular loan or credit card.

Update HMRC about changes

If any of your business information changes, including moving to a new business address, you should update HMRC and Companies House immediately. It’s also important to inform suppliers and customers of these changes.Ìý

Correct mistakes on credit report

Regularly checking your credit report helps you to spot any mistakes. If there are any errors on your report (even if it’s something as simple as a mistake in your address), you should flag them with the relevant agency as soon as possible so they don’t affect your chances of getting credit.

Use business credit where possible

If you have yet to build a business credit history, it’s important to use business finance rather than personal credit so that you build up your business credit score. If you use personal loans or credit cards, your repayments are only recorded on your personal credit report.

Check the credit scores of businesses you plan to work with

This can help you to select suppliers and partners that are in good financial shape.Ìý

I’m looking for finance – what are my options if my credit score is poor?

If you have poor credit, it can be harder to secure business finance and funding. However, some lenders are more lenient than others, so you still have options to explore. Just be aware you may need to pay a higher interest rate, and you may not be able to borrow as much as you’d originally hoped.Ìý

If you have poor credit, you are usually better off approaching specialist online lenders rather than traditional banks. You may find it easier to get a secured loan which requires you to use an asset, such as property, as security because this lowers the risk for the lender. However, you could lose this asset if you don’t keep up with your repayments.Ìý

Alternatively, you may be able to get a guarantor loan, where a friend or family member agrees to step in to repay the loan if you’re unable to.Ìý

You could also consider opening a business bank account with a business overdraft. You won’t be able to borrow as much as you could with a business loan, but this gives you access to credit and can help you build a business credit score at the same time.