Business Credit Scores Explained

​This concise guide explains everything from what a score is, to how to receive a business credit report and how your personal credit score can have an impact on your company credit rating.

What is a credit score? 

Your credit score is calculated by Credit Reference Agencies (CRAs) and used by lenders, banks and suppliers, as:

• An evaluation of how credit worthy a business is
• A guide to a business’s ability to pay back debt and the risk of default

How scores are calculated

A business credit rating is usually a number between 0 and 100¹. The higher the score, the safer it should be to extend credit to the business. A credit report will usually build up a picture of a business using various factors, including¹:

• Companies House records, and other publicly available data
• Any County Court Judgements (CCJs) against you
• Financial information, including from your current account providers, and any credit providers you may have
• Your history of repaying other credit

However, each Credit Reference Agency uses a slightly different criteria, based on their own unique algorithms to calculate credit scores. So each agency might give you a different score.

How to check a score

Your business’s credit rating is so important that it’s worth checking from time to time. Experian and Equifax are the biggest  Credit Reference Agencies and, most commonly used by lenders, but there are others:

• Creditsafe
• Graydon
• TransUnion

Why your rating might not be as good as you think it should be

Just paying bills on time alone won’t give you a great credit rating, because many factors can have a negative effect², such as:

• A history of missing credit repayments or making repayments late
• Bankruptcies, CCJs and Individual Voluntary Arrangements (IVA)
• Being late with filing your accounts to Companies House
• High levels of debt
• Making multiple credit applications in a short amount of time

When personal credit Scores can play a role

If your business hasn’t had time to build a credit rating in its own right, personal ratings will come under scrutiny – so be especially careful to maintain a healthy score. The most likely people to have personal credit scores checked are:

• Sole traders
• Directors and partners of new or small businesses

What impact can a poor score have on your business?

You’ll be seen as a higher risk to financial institutions and lenders because it’s harder to assess how reliable your business is at making repayments. That’s why building your company credit rating is important.

• It shows lenders and other businesses that you’re likely to repay loans or pay supplier bills on time
• It can help you to get a good (low) interest rate and better terms on a loan, saving your business a significant amount

Sources

[1] https://www.experian.co.uk/business-express/glossary/credit-score

[2] https://www.experian.co.uk/business-express/hub/blog/credit-and-finance/find-might-poor-business-credit-score/ 

This content was created on 11th June 2018