Your Business Credit Score: the Ultimate Guide

Mark Halstead Risk

How do credit providers work out whether to accept a business's loan or overdraft application? 

Well, just like individuals, businesses have a credit score. This rating can help potential creditors and other parties to determine whether a firm is creditworthy and financially responsible.

In this guide we explain everything you need to know about business credit scores, how you can improve your company's rating, and why you need tools to monitor credit risk and protect your business.

What Is a Business Credit Score?

A business credit score makes it easy for creditors and other organisations to quickly assess the creditworthiness of a business. 

The score weighs up a variety of factors to provide an indication of a firm's financial position and the level of financial risk other businesses can expect when dealing with it.

A business credit score is important for a number of reasons. Often your business credit score will be used to determine how much you can borrow and at what interest rate, especially when you are applying for a business loan or an arranged overdraft. 

A higher rating can help businesses to get accepted for credit at more attractive rates, while a lower one could prevent them from getting approved in the first place.

Similarly, other organisations can use business credit scores to assess the financial risk posed by the businesses they want to work with. 

Unlike a personal credit score, anyone can view a business's credit rating—including suppliers, other companies, and even customers. They can then use the insights gained to adjust the terms of commercial relationships while protecting their own status.

What Affects Your Business's Credit Rating?

There are many factors that can affect your business credit score.

Much like a personal credit rating, these scores are partially determined by how a business has handled its money in the past. This is why it's so important to pay your bills on time and in full—and that goes for everything from utility charges through to invoices from other companies.

Late and missed payments should be avoided at all costs, since these can have a negative impact on your business credit rating. 

Other types of behaviour can also indicate that a business poses more of a financial risk, including whether it has previously exceeded overdraft limits, and whether it files its business accounts on time without delaying the relevant accounting period.

It's also worth noting that business credit scores can be affected by multiple applications for finance made over a short period of time. 

Every time a firm applies for a new form of credit, the lender they apply to is likely to conduct a credit check. 

These checks appear on your business credit report, and multiple applications in short succession might indicate that a company is behaving erratically and therefore poses a higher level of risk.

How to Improve Your Business Credit Score

Ultimately, the best way to improve the credit rating of your large or small business is to behave in a financially responsible manner. Consistency is key when it comes to improving both personal and business credit scores. The following actions can help you to raise your business credit score and improve your risk profile in the eyes of potential creditors, customers, and other companies:

1.      Settle outstanding payments promptly

Your credit score may increase if you consistently pay invoices and bills on time. Ensuring that you make payments as they fall due helps to show your company is responsible, which is exactly what creditors look for when they're making lending decisions.

2.      Keep your filings up to date

Business credit scores are designed to provide a snapshot of an organisation's financial health. 

This means that your rating is based on not just bill payments and credit utilisation, but also the status of your accounts and other essential filings.

You may be able to boost your business credit score by always filing your company accounts and tax returns on time. 

Similarly, ensuring that the right information is available to directories such as Companies House can give other firms the confidence needed to deal with your business. 

It’s for this reason that you should always try to keep company records such as directorships and other details up to date.

3.      Limit credit checks carried out against your business

As we've already mentioned, full credit searches can usually be seen by other organisations that happen to check your credit report. 

Multiple credit checks over a short period could suggest to some potential creditors that your business is in trouble or that you are not managing your finances in a responsible way.

Limiting the number of business credit applications you make can help to prevent your rating from taking a negative hit. 

Some lenders and credit checking companies provide tools allowing you to 'pre-screen' your business to determine whether or not your firm is eligible for their credit products. 

This can help businesses to apply for financial products they are likely to be approved for, avoiding the need for an additional credit check in the process.

4.      Keep tabs on your personal finances

While your business and personal credit scores will usually be kept separate, some credit providers will review both when considering whether to approve an application. 

For this reason, it's important for the directors and senior officers of a company to monitor their personal credit ratings.

A high personal credit score could also help you to get approved for commercial credit if your business has struggled with finance in the past, or if it is newly formed and has only a very short financial history as a result.

5.      Monitor your business credit score

All of these steps can help when planning for the future, but it's also worth monitoring your company’s credit score regularly. 

By checking your business credit report, you can identify any transactions or negative events that may have been recorded in error.

Since commercial credit ratings are influenced by so many different factors, it’s not unusual for some mistakes to be included in company credit reports. 

It's only through regular monitoring that you can stay on top of these, and you should always ask the credit reference agencies to correct any errors that you notice.

How to Check Your Business Credit Score

As you can see, it's important to stay on top of your own business credit score—but it's equally important to research and review the organisations that you work with.

That’s where Red Flag Alert comes in. However, the level of information we provide goes far beyond business credit scores.

Our database analyses detailed information on every business in the UK, providing complete and easy-to-read reports for each. 

This means that our clients can quickly conduct due diligence checks on any firm they intend to do business with.

Our database includes:

  • Information on over 6.5 million UK companies
  • Over 100 data points on every business
  • 100,000 updates per day and around 50 new companies added every month
  • Financial health scorecard that accurately predicts if a company risks defaulting on your invoices

Our system reviews the same metrics that credit reference agencies use to determine company credit scores, but we also report on a whole host of other data.

This includes the number of CCJs against a company, audit conclusions and age of latest accounts.

This means that you know when your clients have cash flow problems, whether a small business is stable enough to pay your invoices, and whether a company's credit has been handled well in the past.

Beyond Credit Scores

Red Flag Alert also allows users to do more than just check their client’s credit scores:. From lead generation, sales and marketing through to regulatory compliance and financial health monitoring, our technology gives your business the edge over its competitors.

We allow you to:

  • Accurately predict insolvency risk
  • Monitor the financial health of clients
  • Determine the level of business risk posed by clients, and set credit terms accordingly
  • Quickly onboard new clients
  • Find and access new sales prospects with good credit records
  • Meet due diligence and anti-money laundering regulations

Red Flag Alert is the UK's most comprehensive business risk and credit control management tool. For a free demo, please get in touch with Richard West by emailing richard.west@redflagalert.com or calling 0344 412 6699.

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Mark Halstead Mark Halstead Partner

Mark's experience is big data analytics, financial services and building businesses provides Red Flag Alert with strategic direction.