Due diligence

A Guide to the Biggest Factors That Impact Your Business Credit Score

by Nicolae Buldumac
A Guide to the Biggest Factors That Impact Your Business Credit Score

Your business' credit score holds the key to the success of your finances for a number of reasons, and is ultimately a positive or negative reflection of your company. In contrast to your personal credit file, business credit reports are available to anyone who inquires about it - including potential lenders, investors, suppliers, customers and competitors.

With this in mind you'll obviously want to ensure that your business credit is in the best shape possible, and knowing which factors affect your score is the best place to start.

What Exactly is a Business Credit Score?

It's basically a collection of ratings that aims to signify how responsible your company has been with finances. It will usually take the form of a number between 1 and 100, and the higher the figure, the more trustworthy the company. Your business credit file aims to advise other companies about whether they should lend to you, and if so how much.

The information used to form your credit score is pulled from a number of sources, including Companies House, County Court Judgements, Bankruptcy Orders and credit providers, among others. It's worth bearing in mind that new businesses will often only be extended credit based on personal credit history; so keeping your personal finances in check is equally as important.

Why is it so Important?

Having a strong business credit score is important for a number of reasons. First and foremost it can mean the difference between getting approved or rejected for the cash you need to start or expand your business, and will negate the need for a personal guarantee, which will ultimately mean more protection for your own assets.

A good score can also lead to potential moneysaving, through lower interest rates from lenders, and it could potentially help you win new contracts when potential partners and customers seek out information on how financially stable your company is and how secure its future looks.

As is evidenced in the chart below from the 2016/2017 Small Business Finance Markets by the British Business Bank, the majority of small businesses expect the process of obtaining finance to be a difficult one. However, this doesn't have to be the case provided that your company dedicates some time to ensuring your credit score is as healthy as possible.

What Factors Affect Your Score?

Unlike personal credit scores, business credit has no specific scoring system. Each credit bureau will have their own rating system and way of reporting it. Generally however, the algorithm used to calculate your business' score will take into account a number of different factors, and these will usually include:

Credit Applications

As with personal credit, too many applications in a short space of time is likely to have a negative impact on your score. These footprints on your file send a message to potential lenders that your business is desperate for cash, and therefore faces an uncertain future. It's therefore better to plan your credit applications accordingly; space them out and if you find yourself being declined try and opt for another means of funding as opposed to racking up a large number of rejections on your file.

Payment History

This is another important part of your credit file. Credit bureaus will take into account the number of payments that have been made, whether or not they were paid on time and if there were any missing payments or outstanding balances. The best way to ensure your payment history is the best it can be is to pay your invoices early; with some credit bureaus this is the only way to achieve a perfect score. The way in which you handled, and currently handle, your bank account may also be used to determine your score.

Company Structure

Believe it or not, the  way that your company is set up can play a part in your credit score, and ultimately determine how easy it will be for you to borrow money. Sole Proprietorships are considered a single entity, and you are therefore unable to build separate business credit, while Corporations and Limited Liability Companies on the other hand allow you to separate your personal and business credit, meaning your own financial reputation is somewhat protected, and lenders will also be much more likely to approve your applications.

Business Profile

There are a number of different types of information about your business that may also be taken into account when calculating your score. For example, these might include:

  • Company size and age – as is shown in the table below from the 2015 ISED Credit Condition Survey, smaller and newer businesses have a harder time being approved for financing.

  • Financial History - Your business' turnover and profit might be included, as well as the assets you currently have, i.e. cash and inventory etc.

  • Industry - Your company's Standard Industrial Classification (SIC) code may be used to help work out your score, as well as any risk factors in your specific industry.

  • Director's Background - Details about your company's director can also prove important when it comes to your credit score; for example, if he/she had a business that went bankrupt.

Unfavourable Public Records

Having negative records on your credit profile such as bankruptcies, judgements, liens or collections will all obviously have an impact on your score. How badly they do so will depend on how many and there are, how frequent, and their value.

Use of Credit

Your conduct when it comes to credit is another important factor in determining your overall score. As you would expect, exceeding your agreed limit without your lender's permission will have a negative impact, but there are also less obvious ways it is taken into account, for example your utilisation ratio. For example, if you continue to use your maximum credit allowance it will signify that you are experiencing cash flow problems and could negatively affect your credit rating as a result. Instead, you should aim to only use around 25 percent of your credit limit if possible.  

How to Maintain a Strong Business Credit Score

There are other potential factors that could have an impact on your score, for example filing your accounts late, your personal credit score and even how much you have invested in your business. Ultimately the most important thing when it comes to having a healthy credit score is to ensure you are putting the time and effort into actively maintaining yours. There are several ways that your company can do this, including:

  • Ask for credit references - In order to maintain your healthy business credit and ensure it is kept current, you should try to continue working with suppliers and lenders who report your payments to credit bureaus wherever possible. If your vendors don't currently do so, ask them if they wouldn't mind getting into the habit of doing so.

  • Timely payments - Although obvious, ensuring your business pays invoices on time is the best way to keep your credit as strong as possible, as all of the credit bureaus will take this history into account when determining your score. Ideally you should aim to make payments early, for example before you even get sent the invoice.

  • Monitor your file - You should get into the habit of monitoring your business' credit score in order to notice any changes or errors as soon as they occur. Checking up on your own credit score will never have a negative impact, and it also means you can look out for any suspicious activity that could signify your credit details being used fraudulently by others.

  • Keep old accounts open - If you have credit accounts that you no longer use, think twice about closing them; doing so will lower your amount of credit currently available and will therefore impact your score.

  • Check others' scores - It's also important to check the credit files for business partners, vendors and customers in order to assess any possible financial risks and to ultimately protect your own company.

Where to Find Your Credit Score

If you're ready to find out exactly what information other companies are seeing in your credit profile, look no further than Global Database's Business Credit Reports.

As a market leader in company intelligence, we are known for our high levels of data accuracy - and we apply the same levels of care and attention to our credit risk platform. Our unique methodology ensures fair and realistic scores that are kept up to date so you can easily keep track of what your profile is saying about your business.

With our credit reports you can quickly and easily discover what factors are affecting your score so that you are able to take the steps required to improve it where necessary, and our innovative platform also makes quick work of screening other companies so you can avoid any potential financial risks and keep your business protected.

Ready to get started? Find your business credit report on Global Database's Credit Risk Platform.


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