Does Opening a Business Bank Account Affect Your Credit Score?

When you start your own business, it’s important to open a business bank account

that’s distinct from your own personal bank account. This helps create a separation between company money and your own personal wealth. Having a business account can also give you access to an overdraft, and help build a business credit profile.

But there’s also a misconception that opening a business bank account has an immediate negative effect on your personal credit score. Why does this belief prevail? And what are the genuine consequences of opening a business bank account?

Let’s take a look at the truth behind business bank accounts and credit.

Does opening a business bank account affect your credit score?

Having a healthy personal credit score is important. This score is an indication of your ability to pay back a loan, and whether you’re perceived as a risk by the lender. 

A good credit score opens up access to personal loans, mortgages and finance when you most need them, so you obviously don’t want to jeopardise this credit score

So, why is there a common misconception that opening a business bank account will adversely affect your credit score?

Will applying for a business bank account affect your credit score?

The short answer is ‘not usually’. Generally speaking, opening a business bank account won’t have a direct impact on your personal credit score as a founder or director. However, there can be some indirect consequences of credit checks and bad financial management of the funds held in your business account. 

What’s the link between a business bank account application and personal credit checks?

When you submit an application to open a business account, the bank will focus on verifying the validity of your business. This will mean answering questions that provide information like your company registration details and business address.

As part of the checking and anti-money laundering (AML), the bank will typically perform a ‘soft search’ on your credit file. 

But what’s a soft search?

• Soft searches are visible to you but not to other lenders, and they don’t impact your own personal credit score.  
• Hard searches can occur when you apply for credit like a business loan or credit card. These hard searches can temporarily lower your credit score. But applications for a business bank account won’t usually trigger these.

In what situations could applying for a business bank affect your credit score?

The actual application process of opening a business bank account won’t harm your personal credit score. But poor financial management of this business account could lead to your bank, other lenders and credit agencies downscaling your credit rating.

For example:

• If you’ve provided a personal guarantee and the business account is used irresponsibly, leading to large overdrafts, this could eventually affect your own personal credit.
• Having a business bank account is a key part of building a business credit score, which lenders will use to judge your business. Poor financial management could potentially affect your access to credit.

When do banks check your personal credit for a business bank account application?

The direct impact on your personal credit score from opening a business bank account is likely to be minimal. But some UK banks will check your personal credit rating in specific circumstances during the application process. 

Here's when that's most likely to happen:  

1. Verifying your identity and AML Checks:

Banks are legally required to verify the identity of company directors to comply with AML regulations. This usually involves a soft search on your personal credit file.  This check confirms your identity and address but shouldn’t have a negative impact on your personal credit score.  

2. When a personal guarantee is needed:

If the business bank account includes overdraft facilities or other credit products that require a personal guarantee, the bank will conduct a more thorough credit check.

This hard search will appear on your personal credit report and could temporarily affect your score. This is more likely if you’re running a smaller business or startup where your own personal finances are closely tied to the business.

3. If the business has a limited credit history:

If you’re a startup, or a young company with a limited credit history, banks may review your personal credit history to assess your financial responsibility. In the absence of a credit history for the company, this check helps the bank evaluate the risk of providing banking services to your business.

4. When the business's financial stability is under question:

If the bank has concerns about the company’s cash flow, financial stability or potential risk, they may conduct a more in-depth review of your own personal credit. This is most likely if the business has a history of financial difficulties, or if the bank suspects fraudulent activity from the information supplied with your application..

5. When applying for specific account features or services:

If you’re applying for specific account features or services, like overdraft facilities or a large business loan, the bank will want to carry out a more detailed credit check on your own finances as a company director. This is to assess the risk associated with providing these services.

Every bank will have its own credit-checking practices and will look at different specific factors when assessing your suitability for a business account. The size and age of your business, or a history of poor debt, could all trigger a credit inquiry.

The key here is to make sensible use of personal credit, and to be highly responsible when managing both your company finances and your own personal wealth.

Can you open a business bank account if you have bad credit?

Banks will want to see a good credit history and evidence of responsible financial behaviour when you apply for a business bank account. 

Having bad credit won’t rule out the bank agreeing to your application for a business account. But it will make it more difficult and could limit the services on offer. 

If you want an overdraft facility, or a business credit card, the bank will be less open to offering these services when your credit score is poor. 

Whether the bank’s focus will be on your personal credit history, or your company’s overall financial position and history will depend on the bank. 

Banking checks and AML regulations differ greatly between locations, whether you’re applying to a bank in the US, Europe, Africa, Asia or Australasia. It’s crucial to research the local requirements, before you make an application for an account.

Can you improve your chances when applying for a business bank account?

In the UK, digital challenger banks tend to have a more forward-thinking approach to account applications than the major high-street banks. 

Digital banks like Starling, Tide and Revolut all take a broader approach, with a less focused view of your credit score and a broader assessment of your trading history, accounts and viability as an enterprise.  

What can you do to improve your chances of a successful application?

Let’s explore some actions you can take to show a more positive side to your business – and, as a result, a great chance of the bank granting your application for an account.

You can try:

1. Providing a strong business plan: Have a well-structured business plan that demonstrates the business's viability and profitability. This shows the bank that you have a clear understanding of your business and its financial prospects.
2. Show proof of consistent income: Give the bank tangible evidence of your cash-flow position. This could include bank statements, online access to your cloud accounting and copies of your profit and loss (P&L) reports.
3. Flag and deal with any credit issues: If you have specific credit issues, be honest and inform the bank about outstanding debts or unpaid repayments. Transparency and honesty can go a long way, especially if you’re taking proactive action to resolve these credit issues. 
4. Consider applying for a basic account: If you're concerned about your credit position, apply for the most basic business account with limited features. Once you've established a positive banking history, you can always  upgrade to a more comprehensive account that offers features like an overdraft.
5. Be prepared for stricter verification: Banks are likely to want more detailed documentation and verification if you have poor credit. Be prepared and have this documentation ready and in a digital format that’s easy to share.
6. Explore credit unions and community banks: These financial institutions may have a more personalised approach and will be more willing to work with businesses with challenging credit histories, or a lack of credit history.
7. Improve both your personal and business credit: In the run-up to applying for an account, start building your business credit score and improving your own personal credit score. This will help with future applications.

Focus on demonstrating the potential of your business and being transparent about any credit issues. This greatly increases your chances of getting an account.

How can you protect your credit score when applying for a business bank account?

There’s no direct link between applying for a business bank account and a negative impact on your personal credit score. However, irresponsible use of that bank account and bad financial management can lead to your credit score being affected. 

To protect your personal credit score when applying for a company bank account, be prepared, be responsible with your finances and monitor your credit position.

Let’s see what specific action you can take:

Understand the different search types: 

Make sure you understand the difference between soft (identity verification, no impact) and hard (credit applications, potential impact) searches. Check the bank's policy to avoid unexpected hard checks during the initial application process.

Limit any applications for credit: 

When you apply, choose a basic business account without overdrafts or credit facilities. This minimises the risk of hard searches that could have a negative effect on your personal credit score during the account opening process.

Don’t make multiple applications to several banks

Avoid applying to several banks at the same time. Even with soft searches, excessive applications could be seen as a red flag as it may suggest financial instability or potential fraud. This can lead to closer examination and deeper credit reviews. 

Separate your business and personal finances:

Make sure there’s a clear separation between your personal and business finances. Regularly check your personal credit reports for inaccuracies or unauthorised entries. Frequent monitoring gives you time to correct any errors or inconsistencies.

Get your documents and business information together:

Have all your company registration documents, business accounts and cash flow statements ready and in a format that can be easily shared with the bank. This stops any delays that might cause suspicion for the bank. 

Consider fintech and other business finance providers: 

Check out the market for accounts with fintech providers and digital banks. Their flexible criteria for account applications may make it easier to find an account, without such a heavy reliance on personal credit scores and hard searches.

Does a business bank account help build your business credit score?

Building up your business credit is vital. If you’re in need of a small business loan, for example, having a solid credit history and a good business credit score helps you demonstrate to banks and lenders that you can manage credit responsibly,

Sensible use of a business bank account helps you establish and build a separate business credit profile – a real benefit when additional credit and funding is needed.

Banks report business account activity to the main credit reporting bureaus (CRAs).  The way you use your business account, and how it’s managed, will form part of the information that’s used to decide your business credit score. 

Don’t forget that your personal and business credit scores are two separate metrics, so it’s important to monitor and track both your individual credit score and the business credit score for the company.

Does a business bank account help me get a loan?

Having a separate bank account for your company transactions has several benefits. It separates your personal and business finances, demonstrates your focus on financial management and helps you build a business credit profile – all of which paints the business in a positive light when applying for a business loan.

Let’s see why banks and lenders are more likely to accept business loan applications when your company has its own bank account:

• Good organisation of your finance: A business bank account separates your personal and company finances. This shows lenders that you're organised and serious, and makes it easier to track your income and business expenses.
• A proven financial history: Your account statements help lenders access crucial information about your transactions, cash flow and financial activity This is critical when assessing your ability to meet loan repayments.
• Easier due diligence and financial checks: Having this information in your bank statements makes it easier for lenders to review your revenue, expenses and profitability. This, in turn, speeds up the loan application process.
• Some lenders will require a business bank account: Many lenders make it mandatory for prospective borrowers to have a business bank account. Some challenger banks, like Starling, may even make it mandatory to have a business account with their bank before you can apply for a loan. 

Remember, a business bank account itself isn’t a direct driver of your credit score. But sensible use of the account can help establish a good financial track record.

Lenders will evaluate multiple factors when reviewing and approving a loan application – including your bank account history, company revenue, payment history and business credit scores.

Which UK banks check credit scores for business accounts?

The vast majority of UK banks will carry out some form of credit check when you apply to open a business bank account. On top of checking your identity and business verification details, a credit check will usually be mandatory. 

Here’s a quick overview of what the main UK banks will check:

1. Barclays carries out both personal and business credit checks when you apply for a business current account. 
2. HSBC will review your eligibility as a business and carry out credit checks when you apply for a small business account.
3. Lloyds TSB will carry out credit checks and other checks to correctly identify you and verify your credit position when applying for a business account.
4. NatWest carries out credit checks for any account application, and will use these checks to decide which accounts you’re eligible for. 
5. Santander contacts the main CRAs to check your credit history, before making a decision on any application for a business bank account.
6. Metro bank will check your credit rating with the major CRAs when you apply for a Metro business bank account. 
7. Starling carries out eligibility checks for all business accounts. These include looking at your credit data and understanding the nature of your business.
8. Tide does not carry out credit checks when you apply for an account. However, the bank does carry out checks to verify your identity and comply with UK anti-money laundering regulations, which may appear on your credit report. 
9. Revolut will ask for information about you and the money you intend to put in the new account. This includes checking your credit score and identity
10. Monzo does carry out soft checks when you apply for a business account, but no hard checks. This shouldn’t have an impact on your personal credit score. 

Banks’ checking procedures and practices may change over time, so it’s sensible to check the current requirements directly with the banks.

What can you do if your business bank account application is rejected?

There’s no guarantee that your chosen bank will accept your application for a business bank account. The Big Four UK banks (Barclays, HSBC, Lloyds TSB and Nat West) are highly risk averse and will only allow accounts for businesses that pass some fairly stringent identity, AML and credit checks. 

If your application for an account is turned down, it’s not the end of the world. There are other options to explore and ways to improve your financial profile. 

Let’s see what your remaining options may be:

Find out why you were rejected:

If your account application is turned down, speak to the bank and get some concrete answers about why your application was rejected. Knowing what tipped the scales against you will help you improve in those areas and refine your application.  

Explore other banking alternatives: 

The major high-street banks are not your only option. Research which fintech providers, digital banks and community banks you could apply to. And think about opting for a basic account, where there are fewer checks and less criteria to meet. 

Improve the quality of your application: 

It could be that your application was incomplete or fell down in some specific areas. Think about strengthening your business plan, demonstrating the stability of your income and addressing any credit issues (whether personal or business).

Consider other ways to run your sole trader finances:

If you’re a sole trader, it’s not a legal requirement to have a separate business bank account. We would strongly recommend that you do have a separate business account, but it’s possible to run your small-scale business from a personal account. Note: some banks may discourage this in their terms and conditions for the account. 

Use small business loans rather than overdrafts

If you applied for a business bank account that included an overdraft facility, this may be why your application was turned down. Instead, think about applying for a basic account and using a business finance provider, like iwoca, to access the additional finance you need to fund your business growth.

How to improve your credit score for better banking and loan options

A good business credit score can have a significant impact on your ability to access banking and business loans. So it’s important to build a business credit profile and to do everything you can to track, monitor and improve your credit score.

Key areas to focus on will include:

• Timely payment and paying bills from your suppliers and vendors well within their agreed payment terms.
• Reducing outstanding debt and taking a responsible approach to chasing your customers regarding old debt and unpaid bills 
• Checking credit reports and being proactive about monitoring your credit score and risk rating with the main CRAs. 

Does a business bank account help me get a loan?

Having a business bank account doesn’t guarantee that your bank, or any other finance providers, will agree to an application for a business loan. 

You will need to prove your viability as a business and go through several identity, business verification and credit checks to meet the criteria for a loan. 

However, having a business bank account can be a first step in proving you’re financially responsible enough to meet the repayments for a business loan. 

Having that account:

• Shows you’re serious about your business and your finances
• Provides bank statements that demonstrate your income and expenses
• Helps you build a business credit profile that will influence your credit score.

iwoca: the fastest way to open up your finance options

If you have a business account, but were unsuccessful in applying for an overdraft or credit line, iwoca is here to help you get the finance you need. Applying won’t affect your credit score.

Our Flexi-Loan allows you to borrow anything from £1,000 to £1,000,000, with a repayment period from one day to two years.

Find out how a Flexi-Loan could open up a whole new line of finance.

Apply for a Flexi-Loan

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