Improving your business credit score

The impact of the pandemic on businesses has brought the importance of maintaining a healthy credit score to the fore. Data from HM Treasury, reports over 3 million applications were made to the Coronavirus Business Interruption Loan Scheme between May 2020 and May 2021, but only around 50% of these applications were successful. 

Maintaining a good credit score can increase opportunities for external funding, as it demonstrates your creditworthiness to lenders. This will potentially unlock more competitive interest rates, the chance to borrow higher amounts, and greater flexibility with repayments. 

In this article, we will explain how your credit score is calculated, how you can check your current score, and outline some practical steps you can take to improve it over time.

Table of contents

• How your business credit score is determined
• How to check your business credit score
• Improve your credit score in ten steps
• Wrapping up

How your business credit score is determined

Firstly, how is a credit score measured? Your score can be anywhere from 0 to 100. The higher the credit score, the better your company is performing and the lower the risk to potential lenders. Credit scores for businesses are calculated based on certain criteria defined by a Credit Reference Agency (CRA). As part of the evaluation process, a CRA will look at factors relating to the performance of a business, such as business size and previous applications for loans.

How to check your business credit score

In order to find out your business credit score, you can contact a business credit reporting company, such as Equifax, Creditsafe or Experian to request a credit report. Your company credit file will draw information from a number of sources, including the Registry Trust, where any details of County Court Judgements are held, as well as Companies House.

Improve your credit score in ten steps

There’s no single quickfire way to improve your business credit score. It’s a gradual process and will take time. However, there are a number of good practices you can build into your business processes.
 

1. Stay alert - sign up for any alerts that will notify you when your credit record changes or is searched. This will allow you time to deal with any issues as they arise.
2. Monitor your customers and suppliers - keep a close eye on the credit scores of your main customers and key suppliers. Their actions could have a detrimental impact on your own business credit score.
3. Keep tabs on your cash flow - if you get into a negative cash flow situation and end up missing payment deadlines because you’ve run out of cash, then this will affect your credit score. Ways to keep on top of your cash flow include reviewing your payment terms and also making use of online accounting tools, such as Tide’s Cashflow Insights to obtain real-time cash flow forecasts.
4. Pay your bills promptly - your payment terms are a form of credit, so paying on time indicates to creditors that your business has a healthy cash flow.
5. Keep your business up to date - as your credit score isn’t just determined by when money changes hands, you may also gain extra points by keeping your business information updated with Companies House. Always submit accounts and tax returns by their set deadlines too and inform CRAs of any changes to your business location, etc.
6. Consider a business credit card - these can be instrumental for small businesses just starting out. Making repayments on time will help your credit score too.
7. Start small - Restrict how many credit applications you make at any one time. This could lead to multiple credit searches being run on your business, which may give the impression you are struggling. Begin by borrowing smaller amounts that you know you will be able to repay.
8. Take care of your personal finances - when first starting a business, your personal financial data may be used in place of your business information.
9. Close any unused accounts - your credit score could be weakened if it appears you have a lot of credit available.
10. Avoid CCJs - you should avoid receiving County Court Judgements wherever possible and pay them promptly.

Wrapping up

Your business credit score provides an important indicator of the risk level carried by your business. A favourable rating will help you to access business loans, credit, and insurance for your enterprise. Whilst it can take time to build a positive score when you are first starting out, there are practical steps you can take in your day-to-day practices to help, such as consolidating your business finances into one app. Opening a free business bank account with Tide gives you access to the Tide app, packed full of smart features to help small businesses save time on their finance admin.