How to improve a business credit rating

If your business credit rating is poor then it’s important that you try and improve it before applying for business loans or credit facilities. While it is possible to borrow money with a poor business credit rating, you are likely to find that there are fewer options available to you. It is possible that you will be rejected for financing which will further damage your credit rating, or if you are offered a loan that it will come with a higher interest rate.

If you have a low credit rating then all is not lost, as there are steps you can take to improve your business credit rating. This ensures that lenders can see you in the best possible light when you apply for a business loan or other types of business finance.

How can I check my business credit rating?

There are several credit rating agencies that lenders use to determine a business credit score rather than one ‘official’ credit score for each business.

There are four government designated credit reference agencies in the UK for businesses; Experian, Equifax, Creditsafe and Dun & Bradstreet. To check your business credit score, as well as being the owner or director of the company you’re researching, you’ll need your personal details including home address, phone number, email and date of birth and valid debit or credit card. You may have to sign up for a monthly subscription to access your score and other information about your business, but you may find a free trial option before you have to sign up to a monthly payment.

As well as accessing your business credit score, you should be able to use other business tools which reveal the major factors influencing your score, alert you to any changes to your score, and show what lenders see when they are evaluating your business for a loan application. As an added bonus, not only can you obtain your own score as a business owner, but also that of competitors and suppliers; and you can be sure they’ll be looking at yours too. As an example of what can be obtained, Experian can assess a company’s cash flow risk and suggested credit limit.

» MORE: Am I eligible for a business loan?

Do I need a good business credit rating?

You can check your business credit rating at one of several credit ratings agencies. They all have their own way of calculating and displaying their scores. Different lenders will use different credit agencies, so it’s good to get an idea of your business credit score across several companies if you can. Having a good business credit rating will help your business in several ways:

• Borrow/secure loans: You may be able to obtain credit with a moderate credit score, but the lending conditions might be less favourable; for example, you may not be able to obtain the amount you want, or you may have increased costs/annual fees.
• Avoid high interest rates: NerdWallet compares business and start-up loans that could give you access to funds in minutes. However, this might not be available if you have a poor credit history/track record.
• Access to trade credit: A credit line with a supplier is more likely to be available with a good credit score.

Why does my business have a low credit rating?

If you discover that your business has a low credit rating, then this could be for a number of reasons:

You pay your bills and invoices late or miss payments altogether

Paying invoices late damages your reputation and your relationship with others, and possibly impinges on their business as well. If you miss payments to banks, utilities, credit card companies and government organisations it will be reflected on your credit report and damage your business credit rating. Missing repayments on a credit card may not only incur a penalty charge, but also a shift onto a higher interest rate.

You have taken on too much debt

If you have taken out several business loans or have several outstanding credit card balances the credit ratings agencies might downgrade your business credit rating as it could be a sign the business has taken on too much debt and will struggle to repay it or even meet the monthly repayments.

You have over-applied for credit or loans

Making several applications in a short space of time could signify to potential lenders that your company is in financial difficulty.

The information on your file is incorrect

If you do not regularly check your business credit report or haven’t checked it for some time then there could be missing or incorrect information on there which is unfairly damaging your business credit rating.

You have outstanding County Court Judgments (CCJs) against you

If you owe money to people such as a supplier, creditor or contractor, they can apply to the county court for a judgment against you, which will stay on your record for six years, unless your debt is paid off within a month.

This will adversely affect your credit rating and your ability to get a mortgage or loan, as it may be a warning of a company in distress. Some SME lenders will take a look at the overall picture when you apply – so if a customer let you down in the past but you managed to recover you can explain this in your application – but the better option is to avoid CCJs altogether.

How can I improve a business credit rating?

The good news is that improving your business credit score can be a fairly straightforward task. These are some of the most effective ways you can start to improve your score:

• Ensure the information on file is correct – Check that all the information on your credit report is accurate and up to date.
• Check your score regularly – By keeping an eye on your score, you will see any changes so you can ensure you are not adversely affected by wrong information added to your file.
• Pay bills and invoices on time – Install a policy of paying invoices within an agreed time frame or at least 30 days, and ensure that all staff are aware of this throughout the company.
• Deal with CCJs straight away – If you meet all your payments on time, you will avoid any county court judgments against you, which will negatively impact your credit score.
• File accounts on time – Filing accounts promptly is a good business practice and a sign the business is being managed well. Late filing of accounts to Companies House is flagged up as a problem and is likely to affect your credit rating.
• Manage your debt responsibly – Having some debt or credit facility is good for your credit rating. It’s hard for credit rating agencies to evaluate how good you are at managing debt or credit without it. But you must make sure you meet all your repayment commitments on time.
• Check your suppliers’ credit scores – You can look at your partners and suppliers’ credit scores to see if they are in good financial shape. If they fall into financial difficulty, it could leave you with unpaid invoices which could affect your own cash flow.
• Manage your personal finances responsibly – While business credit scores and personal credit scores are separate, some lenders will take both scores into account.
• Review your current finances and spending patterns –The faster you can pay off debt, the better. Avoid using credit cards to make pricey cash withdrawals and see if it’s possible to switch current debts to cheaper interest rates. Do a soft search before making an actual application to see the likelihood of being accepted.

Other tips for improving your business credit rating

Employ the right people

This applies at all levels; if you bring in senior staff with a good history of running or rescuing businesses, you might quickly reap the benefits. If you’re setting up, a partner or director with a good track record in start-ups might be a good move, as credit agencies check directors and their past successes. Not only will a director have more experience (and perhaps cash) in a particular field, but also potentially more contacts who might supply new investment and revenue streams.

Diversify your customer base

Relying on a handful of high-risk clients/partner companies could leave you and your business vulnerable if they are struggling financially. Keep searching for new and interesting possibilities to spread your customer base.

» MORE: Business credit scores explained