What is a business credit score?

Discover how lenders use your business credit score to rank your business's financial health.

When you’re applying for business credit, lenders will check your business credit score to assess the risk of approving the deal.

A business credit score rises and falls based on the financial transactions made by your business. Transactions that indicate responsible borrowing, such as timely debt repayments, will help your score grow. Misdemeanours such as late payments or excessive amounts of credit applications will see your business credit score drop.

The higher your business credit score, the easier it is to be approved for the best business loans, business credit cards etc. It isn’t the only factor that decides your eligibility for credit, but it’s a weighty part of the application process that can sway a lender’s decision either way.

How can I access my business credit score?

Your business credit score is calculated by credit reference agencies. The UK has three main agencies: Experian, Equifax and TransUnion. You can view your business credit score for free by getting in touch with them.

Each agency uses a different algorithm to calculate your score, so you might get different results from each one. As such, your perceived creditworthiness depends on which agency is used by the lender you apply to.

What affects a business credit score?

Like your personal credit score, your business credit score fluctuates as you continue to make financial transactions. Here are some aspects of your business that credit reference agencies will assess when calculating your business credit score.

  • Credit inquiries and applications. When a lender or business runs a credit check on you, this will produce a slight dip in your score.
  • Payment history. Timely debt repayments can improve your credit score. However, if you’re slow to pay your existing debts, this could have a negative impact.
  • Years in business. A lender may consider a newer business riskier than one that’s been around longer.
  • Black marks on your credit. Defaults, CCJs and bankruptcies can decimate your business credit score.

How do I avoid damaging my business credit score?

Business defaults and missed payments are some of the main contributing factors to a low score. Here are three tips to avoid damaging your score:

  • Don’t push your credit to the limit. Maxing out your lines of credit can harm your chances of being approved for additional loans. Lenders may see a high credit utilisation ratio as a sign that your lines of credit are a last resort, causing them to perceive you as a high-risk applicant.
  • Don’t open too many lines of credit. This can also harm your business’s credit standing by making you appear too reliant on credit.
  • Check your credit report for errors. It’s possible that your business credit report contains errors that are harming your chances of being approved for additional credit. It’s good practice to check your credit report before applying for a significant loan.

How do I improve my business credit score?

To improve your business credit score, you need to first establish one by applying for a form of business credit. It’s good to begin building a history of timely debt repayments now, so you have a record of responsible borrowing for credit reference agencies to report on.

If you don’t need a business loan, consider opening a business credit card or business line of credit and paying off your debts in full each month. This will help to build your business credit score without costing you any interest.

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