Business Credit Score: What It Means And How To Improve It (2024)

A business credit score measures an organisation’s creditworthiness. It’s a useful tool for lenders, suppliers and investors, as it allows them to see how a business has handled its finances in the past. We take a look at what influences a business credit score, why it matters, and how to build a stronger one.

What are business credit scores?

Business credit scores allow would-be lenders to assess the risk of extending credit to a business.

Scores are calculated by credit reference agencies, such as Experian and Creditsafe, usually as a mark of between one and 100 – zero indicating the highest level of risk, and 100 the lowest. Generally speaking, a score of 70 or above is considered ‘good’, while 80 is ‘very good’.

Business credit scores can influence whether a company is approved for a loan, how much it can borrow and the rate of interest it’s charged.

Having a strong business credit score makes it easier to access favourable rates, freeing up cash for day-to-day operations and longer-term investment.

What is a business credit report?

Business credit scores form one part of a wider document called a business credit report.

These reports are produced by credit reference agencies such as Experian, Creditsafe, Credit Passport or Dun & Bradstreet, and outline a company’s financial history.

Experian also provides individual credit scores, whereas Creditsafe, Credit Passport and Dun & Bradstreet exclusively provide business credit scores.

They include information such as payment and borrowing history, as well as revenue figures and any County Court Judgments (CCJs), insolvency proceedings or legal claims against the company’s assets.

The report also lists contact details, and may include references from the businesses’ trade partners or suppliers.

Anyone can purchase a business credit report from a credit reference agency.

As well as lenders, new investors, suppliers and contractors may look over a company’s credit report before deciding to work with it.

How are business credit scores calculated?

Business credit scores are influenced by several factors, including:

• Payment history

Whether your business has paid its bills on time and consistently has a significant impact on its credit score.

• Credit usage

Whether a business has met its debt obligations in the past, and how often it applies for credit. Applying for new loans, overdrafts or credit cards too frequently can have a negative impact on a company’s score – particularly if applications are rejected.

• Operation history

Newer businesses typically have lower credit scores than more established ones as they’ve had less time to build up a history of consistent payments and responsible borrowing.

Is my personal credit score linked to my business credit score?

Business and personal credit scores are not linked.

However, if a lender is unsure whether to approve a loan, credit card or overdraft, it may check the director’s personal score for additional context.

However, if you’re a sole trader, and you haven’t registered with Companies House or opened a business bank account, your personal and business credit scores will be one and the same.

How to check your business credit score

Checking your score is relatively straightforward online.

First, you’ll need to create an account with your chosen credit reference agency. Next, you can log into the account and request a credit report.

You’ll be prompted to enter some identifying information about your business in order to produce the report, such as the company name, address and date of incorporation.

Most providers offer an initial report, or a basic report, free of charge. Alternatively, you can pay a monthly subscription to access regular reports and view your business credit score at any time.

Subscription prices vary but £20 to £25 a month is typical.

How to improve your business credit score

Having a strong business credit score can help you secure the credit you need at an affordable rate.

Here are some tips for building a stronger score:

Pay bills on time

Keeping up with your bills signals to would-be lenders that you can reliably manage your business cash flow, and meet financial obligations.

Eduardo Castro, managing director of business information at Experian UK, says: “Paying your business bills can improve your business credit score, as well as helping you avoid action being taken to chase late payments, which could eventually lead to court action such as insolvency proceedings or court judgements.”

He adds: “Being on top of your bills will also help you build strong relationships with the businesses you work with.”

Separate business and personal finances

Whether it’s paying bills, buying new equipment or applying for credit, using dedicated business accounts ensures your company builds its own credit history, separate from your personal credit score.

Mr Castro explains: “To build your business credit score, use your organisation’s finances only, and not your personal credit or guarantees. This way, you can show how well your business is doing financially.”

Keep up with debt repayments

When deciding whether to offer you credit, potential lenders will consider how well you’ve handled any credit in the past.

Keeping up with loan instalments, paying off your business credit card on time and remaining within your overdraft limit can signal to lenders that your business can manage credit responsibly.

Check your score regularly

By regularly checking your business credit score, you can tell if something changes, and correct any issues before they become larger problems.

If you spot a mistake on your business credit report, let the reference agency know right away, as it may be influencing your score.

Good record keeping in general – particularly filing taxes and business accounts on time – can also help your business build a strong credit score.

Funding options for low business credit scores

Having a low business credit score makes it tricker to obtain a loan or overdraft, but some lenders may still consider your application.

If your business is young, or has relatively minor credit issues, your application may simply require further assessment.

In these cases, you’ll be asked for additional information about your business, and the lender may consider your personal credit score when deciding whether to lend to you.

Mainstream providers who reject a business loan application might signpost you to a specialist lender.

You could also consider an alternative funding method, such as:

• Start up loans

The Start Up Loans Company is a government-funded initiative that offers loans between £500 and £25,000, with a fixed interest rate of 6%. The loans are repayable over one to five years.

Successful applicants are also paired with a business mentor, who can offer 12 months of free mentoring.

• Asset-based lending

This type of lending uses a business’ physical assets, or intellectual property, as security against a loan.

It typically allows businesses to access larger loan amounts, but if you fall behind with repayments, you risk losing valuable assets.

• Invoice financing

With invoice financing, lenders use unpaid invoices as a security for funding.

• Peer-to-peer lending

Peer-to-peer lending matches businesses with suitable lenders via an online platform or broker.

As the name suggests, you could be matched with other businesses, or individual lenders, rather than a traditional bank or building society.

• Business grants

Organisations such as the UK government regularly offer business grants. The payments must be used for a pre-specified purpose, such as research and development, expansion or staff training.

Unlike loans, business grants do not need to be paid back.

• Offering equity

Whether it’s through crowdfunding, an angel investor, venture capital or an Initial Public Offering (IPO), finding suitable investors can be a viable option when it comes to business funding.