Your business credit score is a number that indicates how likely your business is to fail in the next year. Your business is scored on a scale of 1 to 100 and the higher the number, the less likely it’s considered your business will fail.
How is my company credit score calculated?
It’s a common misconception that every business has a fixed credit score that’s referred to by credit lenders. It’s important to realise that in reality:
Every credit lender has their own set of rules they use to determine your credit score.
While a UK approved credit reference agency such as Experian, Equifax or Credit Call can you give you an indicative idea of your credit score – it is just that – an indicator. This score is not provided to lenders unless it is specifically requested.
Lenders use their own rules to calculate credit scores because they’re each prepared to take on a different level of risk. They’ll calculate your credit score by referring heavily to both your credit report and any details you supplied with your credit application. If they’ve had previous dealings with you in the past, they’ll refer to their own records as well.
Ultimately, this is why Bank A, who only accepts the lowest risk customers, may calculate a lower credit score for you than Bank B, who is prepared to accept higher risk customers. You might not meet Bank A’s minimum credit score requirement, whereas Bank B may be happy to accept your application.
How can I improve my company credit score?
- Always pay your bills on time. If you can’t pay your business’ suppliers on time, you will be considered a higher risk to credit lenders.
- Don’t make multiple applications for credit. Every time you apply for credit, the lender you apply to will check your credit report, leaving a ‘footprint’ that other lenders can see. These footprints may indicate that your business is struggling financially and signals that you represent a higher risk. Try to hedge your bets and only apply for credit with lenders who are most likely to approve you – brokers can often recommend the lenders most suited to your financial situation.
- Maintain a healthy cash-flow. Show a lender you’re able to manage your finances and they’ll be more willing to lend to you. Make sure you plan well in advance and, if possible, reduce the time you give your customers to pay their invoices. Try to negotiate a larger window of time for paying your own business suppliers if you can.
- Use reliable suppliers and avoid risky customers. Make sure you vet your suppliers before you sign them up. If your suppliers provide goods late, it can have a huge impact on your ability to supply your own customers. Just as you would screen your suppliers, try to screen your customers too. Just like any lender, you should avoid unreliable customers who are likely to miss payments.
- Fix any mistakes on your credit report. You can request your statutory credit report for a nominal fee from one of the three main credit agencies. If you find any mistakes in the report, the credit agency will change it for free if you can provide evidence that it’s incorrect.
These aren’t quick fixes. Improving your credit score will take time. But remember: while one lender may turn you down for credit based on their calculation of your business credit score, another lender may accept you.
This article is provided only for general informational and educational purposes. It is not offered as and does not constitute legal or other professional advice on the subject matter in question. You should not act or rely on information contained in this website without first seeking professional advice on the subject matter in question.