Your credit rating could determine the types of loans you’ll get accepted for, the interest rates, and whether you’ll be able to get a loan at all.
Having a poor business credit rating can also determine whether you’ll be accepted for bank accounts and even business bank accounts. This is why it’s so important that you build your credit score.
But what exactly is a credit rating? And how is a business credit rating different to a personal rating? And more importantly, how can you build your business credit rating? We’ve got you covered – keep reading to find out!
What Is A Credit Rating?
A credit rating is a tool that lenders use to decide whether you’re eligible for credit, and what kind of interest rate they’d be comfortable giving you.
Your business credit score is a reflection of your business’ credit history, and shows potential lenders how you’ll manage loans and repayments.
A business credit score ranges from 0 to 100 – and the higher the score, the better the business credit rating. If the rating is closer to zero, then chances are, you’ll struggle to get a business loan and the interest rates will be through the roof.
Having a low business credit rating will suggest to lenders that you may be a risk to lend money to.
There are certain factors that can affect how your business credit score is calculated. One of the main factors is your credit history, but some others include your credit providers, whether your business is registered with the Companies House, or any information that the Registry Trust may hold on you (e.g CCJ’s).
Different credit reporting agencies may use different calculations to determine your overall business credit score – so each CRA (credit reporting agency) may show you a different credit score.
Business VS Personal Credit Score
You may be aware that you need to keep your personal credit score in check if you want decent rates on loans and mortgages, but did you know that you also need to consider your business credit score?
Your business credit score is completely separate to your personal credit score as they’re used for different purposes.
This is because your personal credit score measures your own ability to make repayments, whereas your business credit score looks at your company’s ability to pay back a debt.
However, if you have a new business or a small business with under three directors, then potential lenders may actually combine your personal and business credit score to get a clearer picture of your and your businesses ability to make repayments.
This will only be done if the company has very little or no financial history to check, so they’ll use personal data to build a clear picture. This is why it’s so important to take care of both credit scores, and not neglect one to fall back on the other.
How To Build My Business Credit Rating
If you have a poor business credit score, then it’s not the end of the world. It’s possible to build your credit score with time – just follow these simple steps and your credit score should begin to improve.
First of all, try to pay your invoices on time as much as possible. This is because payment terms are essentially a form of credit – so your credit score will drop if you don’t pay invoices in a timely manner.
You should also make sure that you’re filing your accounts on time and not missing any deadlines. Failing to file your accounts and tax returns on time could indicate to potential lenders that you’re not capable or that you’re experiencing financial difficulties.
If you’re trying to build your credit score, then you should avoid making too many credit applications against your business, as this suggests to lenders that you’re struggling to be accepted by other lenders.
Instead of making applications, try requesting a quote instead – this will help you to limit the number of applications your business makes, as quote requests don’t appear on your credit report.
One of the most important things that you should do while trying to improve your business credit rating is to avoid CCJ’s (county court judgements). Having a CCJ is a red flag to potential lenders as it gets recorded on your credit report. Always be sure to pay your CCJ on time in the unfortunate event that you get one.
If you need a helping hand building your credit rating, contact us for some expert advice and assistance.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.