19 Ways To Improve Your Business Credit Score

A healthy business credit score isn't just a meaningless number - it's a key to securing better financing terms from suppliers, maximising your chances of securing business loans with favourable rates, or even reassuming new customers that you're a safe, stable company they can put their trust in as their new vendor.

But how do you know if you need to improve your credit score; and if you do, how do you go about it?

The first step is to understand what a business credit score is, and how to check it. 

The next step is to understand where you sit on the scale currently. Do you have a lot of work ahead, or is your company's financial situation looking healthy? 

What Is a Good Business Credit Score?

Every Credit Reference Agency (CRA) has it's own criteria, algorithms, and scores. Normally, the higher the score the better. For example:

• Experian uses a score of 1 to 100
• Creditsafe use a score of 1 to 100
• Dun & Bradstreet uses a score of 1 - 100 (It's called its "Paydex score"), although they also use "Financial Strength" scores and "Risk Indicator" scores to determine credit-worthiness.
• Equifax use a score of 101 - 992 (We have no idea why 992 specifically. Answers on a postcard!)

An excellent business credit score generally falls within the top 20% but that varies across CRAs abd scoring model used. However, in general, scores can be roughly grouped as follows:

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

We spoke with Experian who confirmed (that for businesses) they use a RAG (Red, Amber Green) scoring system with the following values:

0-15: Red
16-50: Amber
51-100: Green

OK, so now that you have an understanding of what you need to be aiming for, let's jump in to what you can do to improve your scores. 

Tips to Improve Your Business Credit Score

1. Establish a Legal Business Entity

Whilst the first three items in our list are mainly for startup enterprises, they can also apply for established businesses who have been operating as sole traders until now.

Ensure that your business is a separate legal entity from you. The business could be a corporation, limited company (Ltd.), or another legal structure. This helps in separating your personal credit profile from your business's credit profile.

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. Whilst it may sound obviously, it's important that you utilise this account for all income and expenditure payments, as if you continue to utilise your personal account you are not demonstrating that the business has any turnover.

3. Apply for a Business Credit Card (or Similar) To Start Building A Good Credit History

It's a common misconception that applying for credit must be a bad thing. When it comes to new entities, the opposite is true. In order to begin building a positive credit history, CRAs actually need to be able to see that you can manage money and your financial commitments responsibly. As a result, it is actually important for you to have some degree of borrowing, even if it's small) to demonstrate that:

• someone has been prepared to offer you credit
• that you've met your obligations in terms of minimum payments on time
• that you've completed the full repayment without defaulting.

Obtaining a business credit card is an effective way of building a good score for your business, as long as it is used responsibly. Ideally you want to pay the full amount off each month to avoid incurring any interest. (Important note: Credit cards are not the best solution for long term borrowing as the interest rates are much higher. If you do find yourself in a position where you cannot pay off the amount in full, ensure that you setup an automated direct debit to pay, at least, the minimum monthly payment off each month before the due date.)

4. Pay Bills on Time

All of the CRAs cite this as one as one of the most important ways to maintain or improve your business credit score. 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. Maintain a Healthy Cash Flow

As we all know, a healthy cash flow is the life-blood of any business, and CRAs use this as an insight into the overall health of your business. Whilst it may sounds similar to the tip above, there is more to it. For example, you could top up the bank account from your personal account or another source in a last minute panic, but that wouldn't signal a healthy, well structured cash flow.

As a result, it's important to look at and optimise your cash flow. Do you find yourself struggling at the end of each month waiting for invoices to be paid on time? If so, can you spread out payment dates so that you have a more regular income throughout the month? Can you make it easier and faster for your suppliers to pay you with the click of a button? With digital banking it's now often possible to send invoices which make it both easier for your clients to add into their accounting package, but also to pay you with minimal fuss. This is a win-win for everyone.

7. Monitor Your Score & Credit Reports & Take Action To Fix Errors

You may think that it is pointless to review your credit file - think again! According to Experian, 96% of reviews result in a postive uplift. It's therefore extremely important to regularly monitor your business's credit score & credit reports. Check for any missing information and ensure this is provided to create as full a profile as possible. Also, check for any inaccuracies, errors, or discrepancies that may affect your business's score, and dispute any incorrect information with the relevant CRA.

As each CRA has their own file for your company and collect different information from different sources, we would recommend that you (at least once a year) perform a full health check from each of the main 4 business CRAs.

8. File Your Company Accounts on Time

Another top tip from CRAs to improve your business credit score is to ensure you always file your company accounts and other documentation on time. Filing on time is an indicator that you're aware of, and on top of your legal and financial obligations. Filing late could signal that you're experiencing financial difficulties.

9. File Full Rather Than Abbreviated Accounts

The type of accounts you file with HMRC and Companies House can also affect your score. Whilst for smaller companies it is often easier, cheaper and faster to file abbreviated accounts or micro entity accounts; CRAs advise that submitting full accounts, Company Tax Returns and/or Corporation Tax with HMRC can lead to increased credit scores in the long run.

10. Keep Business Details Accurate & Up To Date

Ensure you update your customers, suppliers, Companies House, and business directories in a timely manner with any changes you make to your business status, name or contact details.

When you update your annual accounts this can be a good opportunity to spot any out of date information, and perform a sense check that all clients and suppliers are using your current details correctly. If you spot any which are out of date, reach out to them and ask that they update their records as the credit scores of entities which you're associated with can lead to an impact on your credit score.

11. 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.

12. Review the Credit Scores of Partners and Suppliers

Monitor the credit status of your customers and suppliers, as their financial health can impact your own. This is especially important if you are heavily dependent on a small handful of suppliers or customers.

By staying informed, you can spot any potential trouble forming before it becomes an issue to your business, and can take action potentially qiuicker than other debtors in the event of them entering administration.

13. Limit the Number of Credit Applications You Make

Whilst we said at the start of this article that you need a degree of borrowing in order to begin establishing a credit history, it's also true that you can have too much of a good thing. Therefore, you should avoid submitting multiple 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.

There are two types of credit checks. Soft and hard. Soft checks are informal and don't affect your credit score, and these are more commonly available today than they have been in the past. Hard credit checks are formal and do have a temporary impact on your credit score. For each application, a 'footprint' is left on your record and your score will drop slightly. It is for this reason that you should make sure your finances are in top-top condition before applying for any kind of fianance, and that your score is as healthy as it can be.

14. Use Eligibility Checkers Before Applying For a Loan

In addition to the above, using an eligiblity checker before applying for business finance can help protect your score as eligibility checkers typically perform a "soft" check. Contact our team today if you would like us to perform a no obligation, soft check on your loan eligibility. Our friendly team will have a quick chat with you to learn more about what type of loan you need, and then we will be able to advise what options are available to you and where you stand the best chance of securing the finance you need.

15. Ask for Quotation

Similar to utilising an eligability checker, asking for a quotation enables you to often check your eligability without performing a hard credit check. Instead, if required, a soft credit check can be performed.

16. Keep "Credit Utilisation" to 30% or Less

Credit utilisation is the percentage of total credit used, from the total credit available to your business. When trying to improve your business credit score, you want to keep your credit utilisation at 30% or less, although some credit reference agencies recommend trying to keep below 20%. Credit utilisation ratio takes into account all credit lines available to you such as credit card, overdrafts, loans, etc. 

If you can't reduce your borrowing, another way to reduce the ratio is to ask for a credit limit increase or overdraft increase. This increases the total credit available amount, which in turn, reduces the credit utilisation percentage. However, it's important that just because you've increased your ability to borrow, you don't necessarily utilise it as you will be back to square one. 

17. Avoid CCJs

CCJ's (County Court Judgements) negatively impact your credit score, and stay on your file for six years even if you pay off any money owed during that time. If you're at risk of encountering a CCJ, seek help as soon as possible. 

18. 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.

19. 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.