Nine ways to improve your business credit score

Lenders, suppliers, and financial institutions use your business credit score to determine if you’ll pay your bills on time.

A business credit score is more than just a number.

In fact, it can play a role in your business’s overall success.

This is because your credit score helps lenders, suppliers, and other creditors quickly evaluate whether your business will pay its bills on time.

What is a business credit score?

A business credit score is a number that evaluates a company’s creditworthiness, influencing lenders’ decisions to provide financial support.

A business credit score comprises several factors that help assess a business’s financial position and level of financial risk.

Consequently, your business credit score is a measure of your business’s creditworthiness.

How are business credit scores calculated?

Credit reference agencies (CRAs) collect and maintain information on individual and business credit behaviour in the UK.

These CRAs record various parts of your business’s credit profile, including:

1. your business payment history
2. your total amount of debt
3. when you held credit, and for how long
4. the type of finance you have
5. any finance applications you’ve made recently.

CRAs then take all of these factors into account to generate your business credit score, although the method and score range may vary.

For example, with Experian, the score ranges from 0 to 100.

Zero represents a high risk, while a score of 100 indicates a business presents a very low financial risk.

Read about how to deal with debt as a small business owner.

Is a business credit score different to a personal credit score?

A business credit score and a personal credit score are different, although they both serve a similar purpose.

A personal credit score relates to an individual’s financial behaviour and is calculated based on their history of repaying personal debts, such as credit cards and mortgages.

Lenders use this score to assess the risk of lending to that individual for personal purposes, such as a loan to buy a car for domestic use.

A business credit score is specific to a business and is determined based on the business’s history of meeting its financial obligations, including payments to suppliers, lenders, and other creditors.
Sometimes, these two scores can intersect.

For SMEs, where the company may not have a long credit history, lenders may consider the owner’s personal credit score when deciding whether to approve a loan.

Maintaining a good personal credit score can be just as important for business owners as having a good business credit score.

Why is a business credit score important?

Whenever you apply to a bank for finance, the bank will try to create a picture of your personal and business circumstances, combined with your financial history.

This is a crucial part of assessing your business, and the bank will often use the data the credit reference agencies hold about you as part of the process.

Credit reference information is also used by lenders other than banks, including those that offer trade credit.

With this information, the bank can make an informed decision about the potential risks of lending to you.
This risk assessment is not solely based on your past – it also considers your current financial situation and financial behaviour.

Your credit reference information provides valuable insights into how reliably you’ve previously handled debt and met financial obligations.

This information is not exclusive to banks – many other lenders use it, too.

For instance, trade credit providers also rely on this data to decide whether to offer credit to businesses, emphasising its influence in multiple financial scenarios.

What affects your credit score?

Some of the factors that can affect your credit score include:

• payment history – lenders look at whether you’ve paid your bills on time, with late or missed payments negatively affecting your score
• debt levels – the amount of debt you have compared to your overall credit limit, also known as your credit utilisation ratio, can influence your score with a high level of utilisation a potential red flag to lenders
• length of credit history – the longer your credit history, the better your score tends to be, as it gives lenders more information about your long-term financial behaviour
• type of credit – having a mix of different types of credit, such as credit cards, mortgages, and car loans, can positively impact your score
• new credit – frequently opening new credit accounts or having several recent credit inquiries can lower your score
• company accounts – for business loans, lenders may also consider the financial health of your company, with profitability, cash flow, and balance sheet strength all potentially playing a role.

Regularly monitoring your credit report can be crucial to understanding the financial health of your business and address any issues that could negatively impact your score.

How can you check your business credit score?

Checking your business credit score is straightforward.

Several credit reference agencies – such as Experian, Equifax, and Creditsafe – let you check your business credit score for free or for a small fee.

As each agency has its own method of calculating scores, it can be worth checking with several agencies to get a full view.

The process typically involves entering your company’s name and registration number.

Commercial Credit Data Sharing (CCDS) is a government initiative that requires banks to share information about their business customers with credit reference agencies (CRAs).

It was introduced to increase competition and ensure fair access to business financing.

Designated banks share the credit information they hold on SMEs with credit reference agencies.

This data is then available to alternative finance providers, helping them assess credit risk and provide appropriate financing options.

Consider checking your business credit score regularly to monitor your business’s financial health and rectify any issues promptly.

Can I get a business loan with a bad credit score?

Getting a business loan with a bad business credit score can be challenging, but it isn’t impossible.

With a poor business credit score, lenders may see you as a higher risk, which could mean your business loan application is rejected.

Some lenders specialise in providing loans to businesses with poor credit scores.

Because of the lender’s increased risk, these loans may come with higher interest rates and stricter terms.

These may include shorter repayment terms, providing collateral (for a secure loan), and securing smaller loan amounts.

Other sources of business funding

Apart from traditional business loans, businesses can raise funds in several other ways.

A Community Development Finance Institution (CDFI) is an option if you find it hard to access finance or have poor credit.

CDFIs are non-profit lenders that provide debt finance and support through a relationship-based approach. 

Start Up Loans offers personal loans for new businesses, for people who are unable to source funding from traditional lenders. 

A Start Up Loan offers eligible applicants loans from £500 to £25,000 at a 6% interest rate plus a year of free business mentoring.

Peer-to-peer lending serves as an alternative business financing option. 

It allows individuals or businesses to lend directly to others, bypassing conventional banks, and works through online lending platforms.

Invoice financing involves selling your unpaid invoices to a third party for a fee as a way to get immediate cash flow based on money owed to you by customers.

Equity funding is another popular option, which involves selling a stake in your business to investors.
It can provide significant funding, but it does mean sharing ownership and – potentially – profits.

Crowdfunding is also an option and is typically conducted via online platforms, with a large number of people typically investing smaller amounts of funding into a business.

Find out more about your business funding options.

How can I improve my credit score?

Credit scores are complex statistical models that predict credit risk, and can be as equally complex and confusing to understand.

While there is no guaranteed way to improve your business credit score, there are steps you could take to help improve it over time:

1. If you operate a limited company, make sure you file full rather than abbreviated accounts with Companies House. More detailed accounts can positively influence lenders' perceptions of your business's transparency and reliability.
2. Demonstrate your turnover by using your business bank account regularly and over a long period.
3. Always have enough money in your account or have an approved overdraft limit on your business bank account to cover any payments you're due to make, such as cheques, standing orders, direct debits, debit card payments and online payments.
4. Set reminders to pay all bills on time to avoid any negative repercussions. Your history of paying bills on time can affect your business credit score.
5. Make sure your personal finances are healthy. If you're a start-up with little financial information available, lenders who may use data from your personal accounts to calculate your business credit score
6. Collaborate with your suppliers. If you have a good working relationship, ask them to provide feedback and share payment record data with credit reference agencies.
7. Only apply for credit when you need to. It can be tempting to explore the finance options for your business, but making too many applications in a short period will result in 'multiple searches' (also known as 'footprints'), which could suggest you're struggling to secure funding. This can also trigger a credit search on your business, which is noted on your credit record and can affect your credit score. When enquiring about finance, ask for a quote rather than submitting an application.
8. Tracking the business credit scores of your partners, key suppliers, and customers could be a good idea, as their financial difficulties could impact your circumstances too.
9. If any of your information (such as your registered office address) changes, notify suppliers and customers, as well as organisations like Companies House, as promptly as you can.

Also, note that a County Court Judgment (CCJ) or High Court judgment will likely harm your business and personal credit ratings.

Learn more at GOV.UK.