Your Business Credit Score: What it is & How to Build it

15-November-2023

15-November-2023 16:29

in Private clients

by Sam Hodgson

Your business credit score: What it is & how to build it

Your business credit score plays a pivotal role in securing external funding - whether it’s a well-planned expansion loan to move the company to the next level or a burst of invoice financing to see you through a dry patch.

No matter what size loan you're seeking to help grow your company, applying for finance typically means that your business's credit score will be under scrutiny.

For some, the first response to this news will be, “We have a business credit score?” while others may be more familiar with this concept.

No matter how well-versed you are in the world of business finance, our guide to business credit scores can help you get your credit rating ready for applying for business funding.

Looking After Your Business Credit Score

What is a Business Credit Score?

Your business credit score is similar to your personal credit score and is a value based on how you deal with your finances. The key difference is that a business credit score is based on how your business deals with its finances instead of your personal transactions.

Simply put, when you show good financial reliability, such as making payments on time, your credit score goes up. And when you display signs that your outgoings may be larger than the funds coming in, such as missed direct debit payments, your score goes down.

There are a few terms for the business credit score, including “company credit history”, “business credit rating”, “company credit report”, and other similar phrases, but they all mean the same thing.

In the UK, your business will have three slightly different credit scores, each compiled by a different agency. There are three UK credit report agencies (CRAs): Experian, Equifax, and TransUnion.

Each uses very slightly different criteria and methods to generate an overall credit score. However, the end result is very similar, and it is not usually necessary to check all three when looking after your business finances - though it can be helpful in some cases to know which of these agencies is used by your prospective lender and focus on that CRA for your own data-gathering.

For example, Nationwide and the Co-operative Bank use Experian exclusively for credit checks, while Barclays, RBS, and NatWest prefer TransUnion reports.

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Do All Companies Have a Business Credit Score?

Not every company has its own independent business credit score. In the UK, sole traders and partnerships will have their personal credit rating checked when making loan applications as there is a closer link between the self-employed sole trader and the business.

Limited companies, on the other hand, will all have a separate business credit score that is not tied to the personal score of any company directors.

What is My Business Credit Score Based on?

Your credit score is a measure by which prospective lenders can assess your risk level and viability. It’s comprised of a lot more information than simply your payment history (though that is a significant aspect).

In fact, the following all factor into your business credit rating calculation:

Public Record Information

This contains any data that is publicly available on your business and will include legal notices, county court judgements (CCJs), commercial mortgages, and charges and satisfactions.

Filed Accounts

Your company financials include the balance sheet, cash flow, profit and loss, and the account summary with turnover, profit margins, assets, and shareholder funds.

Director’s Information

Any public information on the company directors, including your names, age, nationality, and date appointed. Additional directorships outside the main business (including those resigned) are also included.

Payment History

The part of the credit score that is most under your control and has the greatest impact is the payment history.

Here will be a comprehensive account of all your business dealings for the past twelve months, including an analysis of your payment pattern, and data on your average payment terms, payment performance, unpaid accounts, etc.

Read blog: How Do Business Loans Work?

How Can I Check My Business Credit History?

The first step towards looking after your business credit score is knowing what it is. Thankfully, there are online tools to do exactly that.

The three CRAs have their own websites where you can register to view your credit report, often with additional tools to help you understand the data and see how you can improve. For more details on your credit score, visit Experian, TransUnion, or Equifax.

Looking After Your Business Credit Score

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How Can I Improve My Company Credit Rating?

Improving your credit rating is an essential part of your business management. Here are a few tips:

Make sure your filed information is accurate and up-to-date

An advisable first action point would be to ensure all your publicly filed information is correct. Any delays or mistakes in filing company information can have a significant impact on your credit score and can be easily resolved with some judicious bookkeeping.

It is always good practice to make sure the information available about your company is accurate. Not only will it help with your credit record, but it will also present the right profile to other interested parties, such as investors or potential business partners.

Keep payments on time

Ensuring you make any financial obligations in full and on time is the essence of maintaining a good business credit score.

If you are struggling with any aspect of this, designate to go through your business accounts and cash flow to bring it all up to date.

If your credit rating is at the centre of your interest, it is worth investigating to see which accounts have had a negative impact on your credit score and prioritise those above obligations that are not quite so stringent.

In a world of multiple small subscription-based services, it is easy to slip up and miss a few payments here and there. Review your company’s regular outgoings and see if you can cut back on a few that are unnecessarily damaging.

Remember, potential lenders are looking to see you can make regular repayments, so showing clearly that you can is the first step to obtaining any future financing.

Avoid frequent and multiple hard credit checks

When you apply for finance, the lender will make both “soft” and “hard” checks on your credit history. Soft checks have no real impact and are early-stage credit score reports that can provide an overview of your finances, while hard credit checks are more in-depth. It's the hard credit checks that you need to be wary of, as each one has a small (but not insignificant) knock on your credit score.

If your business loan application isn’t successful, or you’ve had a business finance application rejected in the past, it can be advantageous to leave time between loan applications.

This way, the credit checks won’t have a significant impact on your business’s credit score because they’ll be less frequent. If in doubt, you can ask if a hard credit check will be undertaken at each stage of any loan application.

Be patient

Your credit score is constantly in flux, and no wound is fatal. With time and commitment to efficient financial management, your score will rise. Many lenders will focus on credit history from the last three months, while others will look at the last twelve months. Rarely do potential lenders look beyond a year of credit history, and rarer still are those interested in the last three years.

Be patient while you work on rebuilding your credit score and time any new loan application so that enough time has passed that any minor infractions (and even major ones) have become irrelevant.

Use your credit

One common misunderstanding is that a new credit rating is a clean credit rating. Unfortunately, this isn't necessarily the truth.

Your credit score is used to help a lender determine how reliably you have repaid debt in the past. If you have a brand new and untouched credit history, there is nothing to tell the lender about your debt management - and this can make your company a risk in the eyes of a lender.

Simple credit facilities, such as credit cards, insurance contracts, and mobile phone contracts, can be a good way to build up a history of on-time repayments and visible reliability. That way, when the time comes to make a more substantial application, your lender can see a solid history of fiscal responsibility.

These days, there are even specific business credit building services that will help you build your credit rating over time and help you secure better finance options.

Looking After Your Business Credit Score

How We Can Help

If you have complex circumstances and you’re not sure what options are available to you, we can help.

Whether you have credit issues or a unique business structure, there are often still a range of products on the market and a variety of lenders who may be willing to work with you.

At Clifton Private Finance, we can provide a clear picture of what routes may be suitable. Our team of specialist brokers can assess your specific set of circumstances and arrange a finance solution tailored to your needs.