It's not just individuals who have credit reports. Every business has a credit score too - a figure which rates a firm’s financial health.
Part of running a successful business is ensuring it maintains a good track record. Keeping an eye on its credit rating is essential, as you might need to apply for additional funds for future growth.
This is particularly important for start-up businesses, which can struggle initially to obtain credit.
Companies are usually scored with a number between zero and 100.
The higher the score, the more robust the business appears – and the less likely it is to fail.
How important is this score?
Your business credit report is important, as it says a lot about you to lenders, as well as to your suppliers and customers.
If you know your business credit score, this can help you demonstrate that your business is stable.
A UK-approved credit reference agency, such as Experian or Equifax, can help provide an indication of your score.
Lenders will look at your credit score
If you are looking for a loan to expand or improve your business, a lender will use this information – along with any details you supplied with your credit application – to work out whether to grant you a loan.
This decision will also be associated with the level of risk the lender is willing to take.
A high credit score not only means you’re more likely to get a loan, but also that you are likely to access better rates and payment terms.
Suppliers and customers will also consider your score
Your credit score can also influence the way you appear to other companies – and may affect how willing suppliers are to do business with you.
It can also be the deciding factor in customers deciding whether or not to trade with you.
How is a business credit score calculated?
A credit score is calculated based on all the information held on your credit report.
Most scores take a number of factors into account. These include:
* Whether you have any outstanding debts to other businesses or accounts.
* Your payments history and whether you have any late payments.
* Information available from public records, such as bankruptcies and county court judgements.
If details such as debts, late payments or CCJs show on your credit report, these will negatively affect your score.
How can I improve my business' credit report?
If your business' credit score is not as good as you’d hoped, there are steps you can take to improve it.
You should always pay your bills promptly, as if you can’t pay suppliers when you are meant to, your business will be viewed as a higher risk to lenders.
Be very careful about making multiple applications for credit, as these could leave a series of “footprints” which other lenders can see. This could indicate that your venture has financial problems.
Maintain a healthy cashflow, as this will demonstrate to a lender that you are able to manage your company’s finances.
If there are any errors on your business credit report, get these corrected.
Also bear in mind that missing information can count against your business just as much as having negative data – especially if you are a growing venture.
If this is the case, it is worth writing to the credit reference agency to tell them about your business, including the number of employees or start-up capital. Information such as this can help make lenders more willing to lend.
Here is a handy checklist to help make your business more appealing to lenders:
Make payments on time
Whoever you owe money to, pay on time. This is not only good for building the reputation of your business relationships, but also your credit rating.
After all, this is partly based on your ability to repay any debt on time. If you fear you may forget to make payments, make a note in your diary or set up a direct debit if they’re regular.
Keep records at Companies House up-to-date
The credit reference agency will use documents you file to Companies House to build a profile of your business. So make sure you file regularly and update any information that might be used, making sure it’s accurate.
You could be turned down for any future credit if you haven’t filed accounts, or kept them up-to-date, as this could be seen as a sign of financial difficulty.
Filing as early as possible, particularly if the figures are good, is always advisable to give Companies House time to process everything.
Getting an accountant to keep on top of everything is probably wise, particularly in the early years of a new business.
How to find an accountant for tax self-assessment
Regularly check your credit report
You can check your business’ credit report using one of several UK agencies, for example Experian.
It’s worth frequently checking your credit report for any errors, and definitely before applying for credit.
Go through it carefully to check for any mistakes, and previous addresses, including spellings, as a simple mistake could cause a headache if it’s not detected.
Correct any errors
If your credit record is incorrectly marked for any reason - whether it says you missed a payment or gives the wrong address - make sure this is amended.
You may have to talk to the company that originally supplied the incorrect information. But it's worth it to ensure you get it amended or removed.
Maintain your personal history
If you’re just starting out in business, lenders may not have enough information on your business to make decisions on your situation.
So they may look to your personal credit history, which deserves the same amount of care as your professional one.
Keep your personal finances in check, review your history, and rectify any inaccuracies (if there are any) as a good starting point.
Take control of your finances and improve your credit score with free access to your Experian credit report for 30 days. Find out more.