When you apply for business credit, whether that’s a business loan or business credit card, lenders check your business credit score to assess how creditworthy your business is and whether they are happy to lend to you. As with a personal credit score, the higher your business credit score, the better your chances of approval.
How does a business credit score work?
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, help your score grow. Misdemeanours such as late payments or an excessive amount of credit applications will lower your business credit score.
The higher your business credit score, the easier it is to be approved for the best business loans, business credit cards, etc. Your business credit score 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.
How can I access my business credit score?
Your business credit score is calculated by credit reference agencies (CRAs). In the UK, the main business CRAs include Experian, Equifax, Credit Passport, Creditsafe and Dun & Bradstreet. You can sign up and check your credit score with any of these. Many offer free trials, after which you’ll need to pay a subscription fee to access your business credit report.
Each agency uses a different algorithm to calculate your score, so you might get different results from each. As such, your perceived creditworthiness depends on which agency (or agencies) is used by the lender you apply to.
How does my business credit score differ from my personal credit score?
Although both personal credit scores and business credit scores are used to assess the same thing – how reliable you or your business is as a borrower – there are some key differences.
For a start, your personal credit score is private, but your business credit score isn’t. Customers, suppliers, other companies and credit providers can choose to evaluate your business credit score before deciding to work with you.
Business credit scores also have different numerical scales compared to personal credit scores. For example, while a personal credit score might range from 0 to 1,000 (depending on the CRA), business credit scores tend to range from 0 to 100.
A score of between 0 and 40 is generally considered high risk, and you’re likely to struggle to get accepted for credit.
A score of between 40 and 80 is medium risk, and you might be asked to provide additional information to give the lender a clearer picture of your financial circumstances.
A score of 80 or above is low risk and usually considered excellent. This means you’re more likely to get accepted for credit and secure the best rates, too.
In some cases, a CRA might use an alphabetical scale, where E is very poor credit and A++ is excellent. In this case, lenders are ideally looking for a score of B or above.
Be aware that in cases where your business is fairly new and has yet to build up a business credit history, lenders might also look at your personal credit score to help them establish your financial health. This will also be the case if you’re a sole trader, as your business isn’t legally separate from you – financially, you and your business are one and the same.
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 produces a slight dip in your score. However, it’s usually only temporary.
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, as it won’t have an established credit history.
The accounts you file. Filing your company accounts and tax return on time and in full is better for your credit score.
Black marks on your credit.Defaults, CCJs and bankruptcies can damage your business credit score.
How do I avoid damaging my business credit score?
Business defaults and missed payments are major contributing factors to a low score. Here are 3 tips to avoid damaging your business credit 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 regularly. Even something like a mistake in your address can have an impact.
What are the benefits of having a good business credit score?
Having a good business credit score increases your chances of getting accepted for credit. It can help you secure lower interest rates, saving your business money, and you might be able to borrow more compared to a business with a low credit score.
However, a good business credit score can also boost your chances of winning new business. New suppliers, partners or clients could choose to check your business credit score to assess your company’s financial health. If your business credit score is good, more companies might be willing to work with you – and on more favourable terms too.
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 CRAs 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.
You can also help your credit score by submitting your company accounts and tax returns on time. Plus, if any of your business information changes, such as your registered office address, be sure to update it quickly with HMRC and Companies House (if you’re a limited company), as well as inform suppliers and customers.
Bottom line
Building up a good business credit history is just as important as establishing a good personal credit score. Both will increase your chances of getting accepted for loans and credit cards, and you’re more likely to secure competitive interest rates. But having a good business credit score can also work to your advantage for day-to-day business dealings as anyone, including customers and suppliers, can view it. For this reason, it pays to keep a close eye on your business credit score and take steps to improve it if necessary.
Frequently asked questions
Potentially. Various lenders specialise in offering loans and credit cards to businesses with bad credit. However, these deals tend to have higher interest rates, low credit limits and stricter terms.
Some lenders will check your personal credit score as well as your business credit score when assessing your application. This is particularly common if you have a new business with a thin credit file.
There are various occasions when your personal credit score can be affected by business transactions. This could happen if you have signed a personal guarantee, which means you are personally responsible for repaying the debt if your business can’t. It can also be the case if you’re a sole trader. Our guide on how business transactions affect your personal credit explains more.
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio
Learn the facts about loan applications and your credit score plus what you can do to minimise the impact.
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