A credit score is a numerical representation of a business’s creditworthiness and is used by lenders to assess the likelihood of a borrower being able to repay a loan. The calculation is based on factors such as longevity of the business, payment history, amount owed, length of credit history, new credit applications/enquiries and types of credit being used. A higher credit score indicates better financial responsibility and makes it easier to secure funding, while a lower score suggests a higher risk for lenders.
Improving a business credit score is an essential step for ensuring future financing opportunities. Having a strong credit score will demonstrate to a lender that the business is a reliable borrower. This can help secure better loan terms, higher credit limits, and lower interest rates, all of which are essential for business growth.
There are several practical steps to improve a business credit score and in turn strengthen a financial position:
Monitor regularly – a credit score is calculated based on the information in a business credit report. The first step to improving a score is to review the credit report from large agencies such as Dun & Bradstreet, Experian, or Equifax. Look for any inaccuracies, such as incorrect account information or late payments that were made on time. Dispute any errors that are found, as these can negatively impact the score. If a score is low, then delay the application until this improves.
Be vigilant when paying bills – a company should always try to pay bills either on time or early. Being consistently good at paying bills is an important factor in improving and maintaining a healthy credit score. Being late with payments can severely damage a credit score and make it difficult to secure future funding. Paying bills early demonstrates to a lender that the business will be a responsible and organised borrower.
Build positive relationships – having good relationships with suppliers will play an important role in maintaining a positive credit score. Suppliers can report payment activity to business credit agencies, if this is not something they currently engage in then it would be important to encourage them to start.
Increase available credit – it can be advantageous to increase the available credit available to a business. This can be done by increasing the credit limit on an existing line or opening a second line of credit. Obviously, it is important to ensure the business does not overextend its ability to repay as this can negatively affect the credit score.
Keep everything up to date – filing accounts on time demonstrates financial responsibility and reliability, which strengthens trust with lenders and credit agencies. Completing a confirmation statement is equally important, as it ensures that all statutory information about the company is up to date, allowing creditors to accurately assess the business. Additionally, keeping all personal information up to date helps avoid discrepancies and reduces the risk of identity fraud, protecting both your personal and business credit profiles. Together, these practices reflect good financial management and accountability, both essential for fostering long-term business growth.
Try to use a variety of credit types – using company credit cards, loans and lines of credit has a positive impact on a business credit score. Lenders can immediately see that the business is able to responsibly manage different types of credit. If a business is only using one form of credit, then it can be advantageous to take on a second form.
Keep a healthy credit history – the longevity of a business’ credit history can help to contribute to a credit score. If a business can demonstrate a consistent record of making payments it also demonstrates they can effectively manage credit. Having a short-term credit history can prove to be a disadvantage.
One final point of note is that every time an application for finance is made a record is placed on the credit report. Therefore, it is important to only apply when funding is needed and limit applications over short periods.
Improving a business credit score can take time and the implementation of good financial habits. Having a strong business credit score will increase the chances of securing excellent loan terms.
If you are looking for help with regards to raising business finance, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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