Business-credit-score

Business Credit Score How To Improve It

Business Finance

Business-credit-scoreA small business needs a positive credit score in order for them to successfully deal with suppliers, vendors, lenders and potential business partners. This means for many businesses in the UK, they need to work on improving their credit score.

If your business has struggled to secure new finance or been refused credit by a supplier, this may have had an impact on your future plans for your growth. Can relying on your personal finances really be the answer?

Having full visibility of your business credit profile, enabling you to understand what’s affecting your company credit score, this will enable you to understand what is preventing you from being able to obtain that all important business finance or supplier.

Business credit score

There has arguably never been a more important time than now to have a strong business credit score. The global pandemic has brought with it many trials and tribulations, sending businesses to their knees and forcing a lot of permanent closures. One saving grace for business owners has been the funding they’ve been able to apply for and receive this year, in order to keep their respective ventures afloat during these difficult times.

Though, having a good business credit score certainly helps in getting your hands on the funding that may help your business to survive, so we want to tell you how to make sure yours never falters, even during a global pandemic and protect your business.

Business credit scores reach all-time high in US

CNBC have reported that by the end of 2019, credit ratings for businesses had reached record highs over in the States. They explain, “Factors like paying bills on time and maintaining a low debt-to-credit ratio — made more possible in a strong economy — are among the most heavily weighted actions in determining business credit scores”.

This can all be applied to developing a strong credit score for businesses in the UK. Paying bills in a timely manner and maintaining a low debt-to-credit ratio are both positive and applicable factors for businesses here today.

These are some of the best ways to keep your business credit rating at a positive level:

  • Make sure you pay your businesses bills on time
  • Only use up to 25% of your business credit limit
  • Have more than one credit account open, these can include loans, credit cards and trade lines

All owners of small businesses should try to pay close attention to their credit score. Real Business gives nine of their top tips on the matter:

  1. Monitor customers’ and suppliers’ credit scores to anticipate problems should their businesses struggle.
  2. Check your own score and look at your credit score every month to avoid surprises
  3. File on time and submit accounts and returns on time as late filing can suggest financial problems.
  4. Be proactive and use organisations like eCredable to automatically report on-time payments and build your score.
  5. Keep your credit utilisation ratio down. Pay your bills more than once a month to lower your ratio.
  6. Dispute errors and inquiries and if you see anything in your report that you don’t think should be there, dispute it.
  7. Stay alert and sign up for notifications for when your company’s credit record changes in order to rectify problems quickly.
  8. Establish credit accounts with frequent suppliers to increase the number of positive payments to your file.
  9. Include positive payment experiences in your credit file. Manually add positive trade references to your company’s credit file via your credit reporting agency.

The first step you need to take to improve your businesses credit score is find out what it currently is. This will give you a starting point from which you can aim to take a positive step forward for your company. To do this you will need to acquire a credit rating from a UK approved agency such as, Equifax, CreditSafe and Experian.

You shouldn’t worry about checking your credit score too often, it doesn’t necessarily have the negative implications many believe it does.

Iwoca states that you just have to carry out the method in the correct way. “Monitoring your score through a CRA is a ‘soft check’, which means it is not considered a signal to lenders that you might be in financial trouble. ‘Hard checks’ are when you make actual credit applications, too many of which in a short space of time could harm your score. Once you know your all-important number, which is usually between 0 and 100, you’ll have an idea of how much room there is for improvement”.

A record is not requested at companies house if the business is registered in England and Wales. Financial information of business credit scores is not a regulated industry, as it is not authorised and regulated by the financial conduct authority. They do not have to inform companies such as experian information solutions of their credit decisions against the registered office address.

What your score actually means

Experian information solutions inc use a 100-point scale when working out your business credit score rating, so you should aim to have a score as close to 100 as possible. This would be a perfect score, but business credit ratings are broken down into different ratings. For example, a score ranging between 51-80 is a ‘below average risk’ business. You should aim to be at least within this category.

The full list of ratings used by Experian are as follows:

  • 0 (failed company)
  • 1 (imminently failing company)
  • 2-15 (maximum risk)
  • 16-25 (high risk)
  • 26-50 (above average risk)
  • 51-80 (below average risk)
  • 81-90 (low risk)
  • 91-100 (very low risk)

The higher your business credit score, the more likely you’ll qualify for a financial loan from a lender, this is because they’ll know you’re likely to make repayments on time and be a reliable loanee.

Remember, lenders will file a business report on your company, ensuring you have everything you need to qualify for a loan, so it’s important to look into your finance history before applying for a loan.

How lenders view your businesses credit score

When approaching a financial lender for business funding, they will first view the credit score of your company and their decision will be influenced from the information they analyse.

Depending on your credit rating, lenders will decide whether or not to finance you. They will also use your rating to decipher the borrowing limits, interest rates and repayment terms they wish to enforce upon your agreement.

Experian published an article recently, which focuses on how lenders view your credit score when considering your business for a cash advance. They write, “Conditions can include the interest rate for a credit card or loan or the amount of money you are borrowing as the lender decides whether to approve you. Conditions can also include the lender asking how you plan to use the money you are borrowing.”

“The amount you plan to borrow and how you plan to use it can influence a lender’s decision. Other conditions that can be considered include the current state of the economy or even different lending trends for that industry, such as the impact of the Great Recession on the mortgage industry in 2008”.

Communication with your financial supplier is crucial. It’s best to be upfront about the fact that a due payment is going to be late. If you outline to your lender exactly when you are going to make the repayment, the chances of them reporting you to a credit scoring company are much slimmer. Try to make that if this does ever happen to you, that it’s just a one-off.

The importance of business credit scores

Figuring out how to construct business credit isn’t just about getting through each day at a time, even though that is obviously useful. Strategic entrepreneurs focus on building up business credit and procuring a decent credit rating since it’s important to flourish in the long haul.

Eventually, you’re making a record and a snare of financial connections that could remain with you for a considerably long time. As loaning and acquiring get progressively competitive, your financial soundness will be your greatest resource, so begin fabricating it today and continue it on into the future.

If you have no credit score

For new businesses who have not developed yet developed a credit score at this point, the report may rather use your own financial record – albeit a limited company functions as a different lawful entity from the person. This means that it is crucial you are cautious with your own spending while building your business, until your business has had an opportunity to gain its very own credit rating.

At the point when you start your limited company, you should set up a business bank account straight away, as this will be surveyed as a component of your credit scoring. 

Open a business bank account

A common misconception is that you need income to start a business bank account. You don’t, although you should still manage cash through a business checking account to simplify taxes and ensure your books are fully updated.

Normally, your bank will have terms that specify individual records can’t be utilised for business-related transactions. On the off chance that you work a partnership, you should keep business funds in a record separate from individual budgets and personal finances.

If you are able to use a business credit card to make financial transactions, you can pay a credit card bill via a business checking account.

Keep accounts open and try to be patient

If we can give you one key piece of advice regarding the building of business credit, it is that it’s a marathon and not a short sprint. The more seasoned the credit line, the better. Continue to acknowledge existing accounts and leave them open on the grounds that as your records age, your financial soundness improves.

You may well be looking for immediate results when it comes to your credit reports, and you would be wise as building up your business credit score can have so many positive effects on your venture. However, this really isn’t all that achievable and the process can be quite a drawn out one most of the time.

In the meantime, you should aim to ensure your debt is kept as low as possible and you should be reviewing your reports frequently.

Invest in an invoicing software

One way to ensure your business will maintain a positive credit rating is to invest in an invoicing software. Keeping a good business credit score should be simple, if you pay invoices on time, get paid on time and avoid borrowing over your limits, all should be well and good. But, further complications with with getting paid on time can have negative knock-on effects.

To make sure you keep your finances in check and ensure that you stay organised as a business owner, it may be a good idea for you to invest in an invoicing software system. There are many affordable options currently available in the market today, these include Freshbooks and Quickbooks.

Purchasing an invoice system can create deductions to your list of daily tasks, such as admin work. This will allow you to better use your time in areas such as acquiring new clients or taking further forward steps for your company. You also won’t have to remember to send out invoices, as the system will take care of that for you once set up properly.

Keep your credit applications to a minimum

When you submit any credit application, you run the risk of the company running a credit check on your business. Every time a credit check is processed, it is filed and kept on your business account but no at companies house. If many credit checks are carried out in a short space of time, this can look as though you’re struggling to secure finance – which is not a good indication of suitability for potential lenders.

How to improve your business credit score

Audit your credit report

By purchasing credit reports you can regularly review your credit rating and therefore tackle any problems you my face as soon as possible.

Credit reference agencies collect credit reports, and those reports are based on data available in the public domain about your business. By analysing this data, the decision can be made on how likely your business is to repay a loan on time. So having a good credit score is clearly important for a myriad of reasons.

If you’re analysing these reports yourself, it is imperative that you take notice of the items in the ‘negative’ category and look out for signs of business fraud, outdated information or identity theft. If this information is incorrect and you leave it unchanged it can affect your credit score in a bad way that is underserving. Maintaining these reports with the right information will prove to be highly beneficial to your business venture.

Think carefully about when you apply for credit

Before firing away and applying for credit left, right and centre, you should be aware that every single credit application you file will be added to your credit report, even if these applications are unsuccessful. This means that every time you have a loan application rejected, it could be damaging to your current credit score. Before continuously applying for credit, you should be aware that lenders will definitely be put off by businesses that appear to almost solely rely on credit alone.

Having a positive cash flow will help to build up your business’ credit rating because credit agencies will take into account any difference between your current liabilities and assets. Lenders will view you as a much more creditworthy company if you have a strong level of incoming cashflow.

Focus on paying creditors on time or early

You can prove that you’re both a reliable and sensible borrower by paying your accounts on time or even early whenever possible. There are key differences to each credit companies research policy, but they’ll all consider your financial history as a bare minimum when analysing your application. This means the quicker you can get into the habit of creating a positive credit history for yourself and keep it consistently good, the better the odds will stack in your favour.

You should note that credit utilisation is something which is taken into account whenever someone applies for credit. Because of this, you should avoid maxing your card to the limit or using more than 70% of the funds available in your account.

You should aim to always pay your suppliers on time because credit scoring agencies will often compensate for a dearth of information by contacting your them. Not only is this advantageous for conserving good business relationships, but it’ll also guarantee that you get a good reference when you go searching for finance, which is something that can be crucial to any business.

How do I check my business’ credit score?

You’re able to check your credit score by creating an online account with a number of credit reporting agencies. You should be aware that you may have to pay a monthly subscription to access your credit score details. You can check your business credit report by using tools such as Experian and Equifax which alerts you to any change..

Knowing the statistics

The more you know about business credit scores, the better and that’s why we want to bring these statistics to your attention that have been found by Experian. They have made the following findings:

  • Only 13% could correctly identify all the key factors that influence the credit rating of a business.
  • Nearly three in five (59%) small firms had never checked their commercial credit score. And of those that had, over half (56%) hadn’t checked within the previous six months.

This clearly shows where you can go wrong and what mistakes you need to avoid making, in order to have a successful business future.

Improve your business credit score during Covid-19?

There are a number of ways of improving your credit score while owning a business in the current Coronavirus climate. Here are just a few key examples for you to think about:

  • Audit your credit report

By purchasing credit reports you can regularly review your credit rating and therefore tackle any problems you my face as soon as possible.

Credit reference agencies collect credit reports, and those reports are based on data available in the public domain about your business. By analysing this data, the decision can be made on how likely your business is to repay a loan on time. So having a good credit score is clearly important for a myriad of reasons.

If you’re analysing these reports yourself, it is imperative that you take notice of the items in the ‘negative’ category and look out for signs of business fraud, outdated information or identity theft. If this information is incorrect and you leave it unchanged it can affect your credit score in a bad way that is underserving. Maintaining these reports with the right information will prove to be highly beneficial to your business venture.

  • Only apply for credit when you really need to

Before firing away and applying for credit left, right and centre, you should be aware that every single credit application you file will be added to your credit report, even if these applications are unsuccessful. This means that every time you have a loan application rejected, it could be damaging to your current credit score. Before continuously applying for credit, you should be aware that lenders will definitely be put off by businesses that appear to almost solely rely on credit alone.

Having a positive cash flow will help and improve to build up your business’ credit rating because credit agencies will take into account any difference between your current liabilities and assets. Lenders will view you as a much more creditworthy company if you have a strong level of incoming cashflow.

  • Be sure to pay creditors on time or early 

You can prove that you’re both a reliable and sensible borrower by paying your accounts on time or even early whenever possible. There are key differences to each credit companies research policy, but they’ll all consider your financial history as a bare minimum when analysing your application. This means the quicker you can get into the habit of creating a positive credit history for yourself and keep it consistently good, the better the odds will stack in your favour.

You should note that credit utilisation is something which is taken into account whenever someone applies for credit. Because of this, you should avoid maxing your card to the limit or using more than 70% of the funds available in your account.

You should aim to always pay your suppliers on time because credit scoring agencies will often compensate for a dearth of information by contacting your them. Not only is this advantageous for conserving good business relationships, but it’ll also guarantee that you get a good reference when you go searching for finance, which is something that can be crucial to any business.

  • Watch out for county court judgments

People can use the legal system and act through the courts if they believe you owe them money. They’ll act against you through the use of a county court judgment (CCJ) or high court judgement. If you do get a CCJ registered against you, ensure that you settle it within 28 days so the judgement is cancelled and will not come up on your record in the future, as that will obviously harm your credit score and your chances of gaining credit from a lender. Also your customers may see this also and panic about the businesses creditworthiness.

Unpaid county court judgements can appear on your register for up to six years, so you need to make sure you’re avoiding them at all costs.

Apply for finance with a poor business credit score

Owning a business in the troublesome world of the global pandemic makes it exceedingly difficult to change a bad business credit score to a positive one. If you’re continuing to struggle making any improvement to your credit score as a whole, you can choose to opt for unsecured business financing methods, such as a Merchant Loan Advance.

If you have a positive business credit rating and require further funding to take your company to the next level, consider using merchant cash advance providers like PDQ Funding. You can get a quote directly from our website and discuss your options with a friendly member of our expert team.

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