How to improve your business credit score

Your business credit score has a major impact on your chances of success when borrowing capital, the interest you pay and the amount you can borrow. The better your credit score, the better the conditions under which you can access capital. That’s why business owners have a vested interest in building and maintaining a good credit score. 

Here we’ll explain what your business credit score is, what affects it and how you can improve it.

What is a business credit score?

Your business credit score is a measurement that lenders use to understand how safe your business is as a lending prospect. When applying for a small business loan or business overdraft, your credit score helps lenders assess your risk level based on your credit history and how you manage repayments. 

• Depending on the agency assessing your business, your credit score will usually be a number 0 to 100. 
• Credit reference agencies (CRAs) judge your financial health by looking at public records such as bankruptcies and county court judgements, your payment performance, and any outstanding debt

The higher your score, the better your company looks to lenders and suppliers. This means you're more likely to get approved for loans, credit lines, and favourable payment terms – all of which can be crucial for growing your business.

How to find out current business credit score

Credit scores are created and maintained by credit reference agencies (CRAs) who use a range of data to assess how likely you are to be able to repay money lent to your business.

Before taking steps to improve your business credit score, it’s worth checking where you stand by getting a credit report from a UK-approved agency such as Equifax, CreditSafe and Experian.

Which one should you pick? Well, they’re all very similar.

• Equifax scores your businesses’ credit risk on a scale from 101 to 992
• Experian score you from 1 to 100 – over 76 or higher is healthy
• CreditSafe also scores you from 1 to 100, and lets you see your company’s credit report for free.

What’s a good credit score?

While different CRAs use varying scales, a good rule of thumb is:

• 80 or above: This is generally considered excellent and should help you access the best deals.
• 40 to 79: This is not bad, but you might need to provide more information when applying for credit.
• Below 40: This suggests higher risk, and lenders may be hesitant to offer you credit.

What’s the difference between a hard credit check and a soft credit check?

A hard credit check happens when you formally apply for credit, like a loan or credit card. 

• This leaves a 'footprint' on your credit report, and too many hard checks in a short time can hurt your score. 
• Lenders see it as a sign you might be struggling financially and applying for too many loans.

A soft credit check, however, is just a light peek at your credit report. 

• It happens when you check your own score, or when a company checks your eligibility for a product without a full application. 
• Soft checks don't affect your score at all and are only visible to you.

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. 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.

10 tips to improve your business credit score

1. Pay on time: Late payments harm your rating.
2. File promptly: Don't delay accounts and returns, which might indicate financial issues.
3. Avoid CCJs: These seriously damage creditworthiness and trust in your business.
4. Build your credit history: use credit responsibility to show you can manage debt.
5. Keep information accurate: Outdated details raise doubts about your business reliability.
6. Monitor your network: Your partners' finances can affect yours so keep an eye on their scores.
7. File full accounts: Give a complete picture of your finances, instead of abridged, filleted or micro-entity accounts .
8. Manage your credit utilisation: Avoid using your full credit limit on individual products.
9. Check your credit report: Stay informed and fix any errors, like missing payments or information.
10. Use eligibility checkers: Avoid unnecessary credit inquiries and hard searches.

Always make payments on time

It’s an obvious but important point. Late or missed payments on things like business credit cards and company invoices can be seen as red flags by CRAs. Being organised and making all payments on time will improve your credit score and stand your business in good stead when applying for credit in the future.

Also bear in mind that if financial data on your business is limited, information on payments in your personal life may sometimes be used as an indicator of risk.

File promptly

Filing your accounts with Companies House in good time and in full can improve your credit score. Credit reference agencies use this information as a factor when assessing your financial health.

The earlier you can submit your accounts the better, as filing at the last minute could mean credit agencies aren’t able to access the information when they request it and will presume your accounts weren’t filed on time, which could negatively affect your credit score.

Avoid CCJs

When suppliers or customers have a problem with your business, county courts are the recourse for sorting out the issue. A County Court Judgement (CCJ) is a sign that an adjudicator has decided against your business in a financial dispute – a major red flag for lenders and suppliers. 

They indicate your business hasn't paid its debts, which seriously damages your creditworthiness and reputation. Even if you eventually pay the CCJ, it remains on your credit report for six years, making it harder to access finance.

Build your credit history

Businesses with the best credit scores aren’t necessarily the ones that have never borrowed money. Without a history of using credit responsibly, CRAs don’t have much to go on, so try to establish a credit facility to get your record started. According to Experian, applying for and using an overdraft doesn’t count, and neither does simply being ‘in credit’ (i.e. having a healthy bank balance).

Instead, you’ll need to borrow using a business credit card or by taking out a loan, but it’s vital you don’t borrow beyond your means and repay in full and on time each month, otherwise, the line of credit could do more harm than good.

Keep information accurate

It can seem trivial, but outdated or incorrect information about your business can also be a concern. When partners perform basic searches about your company, missing or contradictory details might make you appear unreliable or raise suspicions of fraudulent activity.

Make sure you’re on top of:

• Registered office address: Notify Companies House and HMRC of any changes promptly.
• Contact details: Make sure your phone number, email address, and website are current.
• Director information: Update Companies House if there are changes in your company's leadership.

Monitor your network

Your business credit score isn't just about you – it's also about who you do business with. The financial health of your suppliers, partners, and even key customers can indirectly impact your own score.

That’s why it’s worth checking the credit positions of new suppliers and clients too. If they have a history of being unreliable, they could put extra pressure on your cash flow by missing or delaying payments or the delivery of supplies.

File full accounts

When it comes to Companies House, there's a choice between filing full accounts or abbreviated accounts. For your business credit score, full accounts provide more information for CRAs, more transparency and a greater impression of confidence in your performance.

Manage your credit utilisation

Your credit utilisation is the proportion of credit you use of the total amount that’s made available by a bank or other lender. It’s another of the factors CRAs use when figuring out your credit score. Let’s say, for example, that you have a business credit card with a £1,000 monthly limit.

If you use an average of £200 per month, your credit utilisation ratio will be 20%. The aim with credit utilisation is to keep it as low as possible—ClearScore recommends under 30%, or even under 20%, if you can.

One way to decrease your credit utilisation ratio is to reduce your spending. If this isn’t an option, you could try asking your lender to increase your limit or open a new line of credit. Be careful though, as too many active lines of credit may not be looked on favourably by lenders.

Check your credit report

Regularly checking your business credit report helps you stay informed about your financial health, identify areas for improvement, and catch any errors before they cause problems.

Use eligibility checkers

Before you apply for credit, consider using an eligibility checker. This gives you an idea of your chances of approval without affecting your credit score with a hard search.

Protect your business credit score

Building a strong business credit score takes time and effort, but mistakes can happen quickly and have lasting consequences. 

Don't let late payments or cash flow gaps derail your financial reputation.  An iwoca Flexi-Loan can provide you with the financial flexibility you need to ensure consistent payments and keep a clean credit history.

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