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13 Ways To Improve Your Business Credit Score

04 April 2024

Improving your business credit score is important for obtaining better financing terms, supplier relationships, and overall financial health. However, many businesses may not know how to improve their score. Fortunately, this article contains many accessible ways of increasing your score, opening up more opportunities for your business.

What Is a Business Credit Score, and What Is an Excellent Credit Score?

A business credit score is similar to a personal score, but it assesses the creditworthiness of your business, rather than of an individual. It is used by lenders, suppliers, and other businesses to evaluate the risk of extending credit or entering into financial transactions with your business. Your business’s score is based on various factors relating to credit history, financial performance, and payment behaviour.

Having a good score - or even excellent - should be an important consideration for your business; it indicates to lenders and suppliers that a business is financially stable, reliable, and likely to fulfil its financial obligations. It can also help your business qualify for favourable terms on loans, lines of credit, leases, and trade credit arrangements. Conversely, a poor score may limit your business's access to financing or result in higher interest rates and fees.

An excellent business credit score generally falls within a certain range, which may vary depending on the credit reference agency (CRA) and scoring model used. However, in general, these scores are categorised as follows:

  • Excellent: 80-100
  • Good: 60-79
  • Fair: 40-59
  • Poor: 20-39
  • Very Poor: 1-19

What Are Credit Reference Agencies?

CRAs are organisations that collect and maintain financial information about individuals and businesses. They compile this data into reports and use it to generate credit scores, which help lenders assess the creditworthiness of borrowers. CRAs collect financial data, compile credit reports and generate scores from the reports. These are then provided to lenders, who evaluate loan applications, determine interest rates and make lending decisions from the reports and scores.

13 Tips for Improving Your Business Credit Score

How do you go about reaching a business credit score of good or excellent? We’ve accumulated 13 of the best tips for improving your business credit score, all of which are achievable through persistence, patience and the advice of professionals around you.

1. Establish a Business Entity

Ensure that your business is a separate legal entity from yours. The business could be a corporation, limited company (Ltd.), or another legal structure. This helps in separating personal and business finances.

2. Open a Business Bank Account

By having your own business bank account separate from your personal account, you can build your business score and create a credit history. Your personal credit score will then be separate from your business score.

3. Apply for a Business Credit Card

Obtaining a business credit card is an effective way of building a good score for your business, as long as it is used responsibly. Make timely payments and keep your credit utilisation rate (CUR) low, ideally below 30%.

4. Pay Bills on Time

Ensure that your business pays its bills, invoices, and financial obligations on time or ahead of schedule. Late payments can negatively impact your business's score, so it is essential to prioritise timely payments to creditors and suppliers.

5. Ensure You Have Sufficient Funds for Scheduled Payments

Ensure that your account maintains a sufficient balance or an approved overdraft limit to cover any scheduled payments, such as cheques, standing orders, direct debits, debit card transactions, and online payments - not doing so can harm your score.

6. Monitor Credit Reports

Regularly monitor your business's credit reports from a credit reference agency. Review the reports for inaccuracies, errors, or discrepancies that may affect your business's score, and dispute any incorrect information.

7. Engage In Collaboration With Your Suppliers

Foster strong working relationships with partners and suppliers. By doing so, you can enquire about the possibility of them offering feedback and sharing payment record information with CRAs.

8. Monitor Your Financial Performance

Regularly review your business's financial performance, such as cash flow, profitability, and liquidity. Maintaining strong financial health and demonstrating consistent revenue and profitability can positively impact your business's creditworthiness and score.

9. Consider the Credit Scores of Partners and Suppliers

Monitor the credit status of your customers and suppliers, as their financial health can impact your own. By staying informed, you can mitigate potential harm to your business in the event of either party entering administration.

10. Limit the Number of Credit Applications You Make

Avoid submitting numerous credit applications for your business within a short timeframe, as this may signal to lenders that you are encountering difficulties in funding, which could harm your score over time.

11. Keep Business Details Accurate

Regularly update your customers, suppliers, Companies House, and business directories with any changes you make to your business location or status. Outdated or inconsistent information can create a negative impression of your business, making it seem untrustworthy.

12. Seek Professional Help

Consider seeking advice from financial advisors, accountants, or credit specialists. They can provide guidance on improving your business's credit score and advise on managing its financial affairs effectively.

13. Be Patient and Persistent

Improving a business credit score takes time and consistent effort. Be patient and persistent in implementing credit management strategies and monitoring your business's progress towards improving its score over time - your patience will be rewarded in the long term.

Are You Looking for Bespoke Finance Solutions?

If your business could benefit from finance solutions that are bespoke to your needs, Union Business Finance could provide you with the funds you need. Explore our different finance options, or get in touch with us today to find out more.

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