The most important things to look out for in a business credit report
When looking at a business’s business credit report, it is important that you’re able to understand the company’s financial health and its credibility. Businesses will be looking to apply for loans and will, therefore, need to negotiate with suppliers and make sure that their business credit report is as healthy as possible.
But what exactly should you be looking for in a business credit report? Here, we’ll look at the key elements that can make or break a business credit check.
Business credit score check
One of the first things that should be done is a business credit score check - a score between 0-100 depicting a business’s financial health. This is similar to a personal credit score and the higher the score is, the better the business’s financial performance will be.
By looking at a business’s credit score, you’re able to determine how reliable the business is in managing debt.
Factors that affect a business credit report
So, what affects a business credit report? Late payments, high credit utilisation or recent credit enquiries will all impact a business’s credit score. Let’s take a look at these in more detail.
Payment history
Payment history is a crucial component of a business credit report and is something that you should be looking at very closely when looking at the financial health of a business. By looking at the payment history of a business, you’ll be able to find out how the business has managed its debt and whether or not there have been any late payments.
Credit utilisation rate
What is a credit utilisation rate? Well, it is another very important factor that you’ll need to look at when digging into a business’s financial history. A credit utilisation rate represents the amount of credit the business has used compared to the amount of money available. Usually, if a credit utilisation rate is above 30%, it means that the business is too reliant on credit, negatively impacting its credit score.
For a business to keep its credit utilisation rate in check, it should pay down balances regularly and avoid maxing out its credit lines. Monitoring this rate in business credit checks can help the business manage debt more effectively and improve its creditworthiness over time.
Outstanding debts
Here, you’ll find the total amount of money that the business owes its creditors, including loans, credit card balances and any other forms of debt. As you may well know, high levels of outstanding debt can be a red flag for lenders.
It is important to review this section so that you understand how much debt the business carries and to consider whether or not it is worth investing in. A business’s credit score will improve when its outstanding debt is reduced.
Credit enquiries
A business credit check will be performed each time a business applies for credit. This will also show up on the business’s credit report as a credit enquiry. If the business has a large amount of credit enquiries, it will negatively impact the credit score.
When reviewing a business credit report, keep an eye on the number and timing of credit enquiries. If you notice an unusually high number of enquiries that have been initiated, it could be a sign of fraud, and you should investigate further.
Public records
A business credit report may also include public records, such as bankruptcies, tax liens, or judgments. These records can have a significant negative impact on a business’s credit score and its ability to successfully secure financing with suppliers.
It’s important to note that there are a few other factors that will also influence a business’s credit score, such as whether or not the business is registered with Companies House, or whether the business has any County Court Judgements (CCJs).
What is a good business credit score?
The higher a business’s credit score is, the more creditworthy it will appear to lenders, so it is in the best interest of the business to ensure that their score is as high as possible. For example:
- A score of 80 or above is considered excellent because a business is considered low risk
- A score of between 40 - 80 means that a business will need to provide extra information to the creditor so that its suitability can be determined
- A score of 40 or below is considered low and lowers the possibility of being able to lend money
Understanding a business’s business credit report is essential when investigating its financial health. By regularly conducting business credit checks and focussing on key areas like a business’s credit score, payment history, and outstanding debts, you will be able to understand the financial health of the business.
A strong business credit report not only makes it easier to secure financing but also opens doors to new opportunities, partnerships, and growth for the business.
Be sure to get in touch with our team of experts at Creditserve when looking to perform business credit checks. We offer bronze, silver, and gold packages for these business credit checks and are here to help you every step of the way. Contact us today at 01992 414222.
