What Affects a Company Credit Score?

If you are running a business, you will probably be aware of the importance of ensuring your company's credit score is in check. In this article, we will look into what affects a business credit score and the different strategies you can put into place to help keep your credit score healthy.

What Affects a Company's Credit Score?  

The exact way in which a business credit score is calculated is actually a trade secret; however, there are a few standard things that credit reference agencies look at when calculating it. 

Credit reference agencies will look at the business’s payment history, the age of the credit history, the debt and debt usage of a business, the risk that the business poses within the industry, and the size of the business. 

Additionally, credit reference agencies want to understand the debt load of the business. Does your business have a manageable debt load? If so, this indicates that your business may be struggling to meet its financial obligations. At Creditserve, we make credit decisions easier for you. To learn more about how to do this, get in touch or book a free demo today! 

Credit referencing agencies want to know about your diverse credit mix and if your business has a long credit history. One thing to remember, though, is that if your business has been making too many credit enquiries, this will count against your credit score. 

The reason for this is that it shows that your business may be struggling financially and is looking for new sources of credit. 

There is a lot to take into account when checking a company’s credit, and according to the Prompt Payment Code, an important sign to look out for is if a company pays its debts on time because it receives “more favourable pricing or service which could make (them) more competitive.” (Prompt Payment Code).  

Lastly, credit reference agencies will look at public records to see if your business has any tax liens or bankruptcies against its name. Both of these types of records indicate that your business has had financial problems in the past,  affecting your company's credit score. 

Why Your Company's Credit Score is Important

Overall, having a healthy company credit score means that your business is financially reliable and reputable. In the event that you may need to access a loan, your business will stand a higher chance of accessing that loan if its credit score is high. The higher your business credit score, the more financially reliable and healthy your business is deemed to be.  

But, other than showing the credit referencing agencies that your business is financially reliable, there are a few other reasons why having a high company credit score is beneficial, too. 

• You will be approved for loans and other forms of credit
• You will get better terms on loans and other forms of credit
• You will be able to build a good relationship with your suppliers or prospective suppliers
• You will stand a better chance of attracting new customers, as they will know that your business is reliable 

How to Improve Your Company Credit Score 

We are now aware of the importance of having a high business credit score, but how can you make sure that your company's credit score actually improves? Below are a few ways in which you can improve your company's credit score. 

Being on time with your payments

Try as much as humanly possible to make sure that your business’s payments are made on time. 

Although “prices of essentials like food have risen at their fastest rate in 45 years” (Eventura), according to Eventura’s Business Advice, credit referencing agencies will still need to look into your payment history to find out whether or not you pay on time. 

Have enough money in your account

This point follows from the previous one with regard to your business’s financial state. You should always make sure that you have enough money in your business account to cover any bills that are due, as this will have a positive impact on your payment history. 

Ensure your personal finances are in good shape

Always ensure that your personal finances are healthy, too. If your business is a small start-up and you have little financial information to offer, credit referencing agencies will take a look at your personal finances instead. 

Only apply for credit when you need to

Only ever apply for credit when you absolutely need to. If your business makes too many applications for credit in a short period of time, it will have a negative effect on your company's credit score. 

What this suggests to credit referencing agencies is that your business is desperate for finances, and this will have a negative impact on your creditworthiness. A pro tip here is to always ask for quotes first rather than filling out an application. 

Collaborate with your suppliers

If you have a positive working relationship with your suppliers, you can ask them to provide payment history information to credit referencing agencies. This will support your business’s reliability and creditworthiness, helping to improve your company's credit score. 

Notify the appropriate bodies if any information changes

Be sure to notify suppliers and customers if any important information for your business changes. This can include information such as your business’ registered address. 

Demonstrate your turnover by using a business bank account

You will need to be able to demonstrate and prove that your business is making a turnover, and the best way to do this is by using a business bank account. This will also help in placing your business in a position of strength. 

Keep track of the company credit scores of partners and suppliers

You can also help your company's credit score by keeping track of the credit scores of your business partners, suppliers, and customers, because their financial situation could affect your business.  

What If You Have a Good Company Credit Score and Need to Maintain It? 

So, now that you have a good company credit score, how do you actually go about maintaining it? Maintaining a good company credit score requires consistent financial discipline and proactive monitoring. As mentioned above, one of the main ingredients to keeping up a good score is being able to master payment discipline.  Your priority should always be to ensure that your loans and supplier invoices are all settled (ideally ahead of the due date). 

Company credit scores are directly impacted and can instantly be downgraded by vendors reporting late payments - this includes even being a day late. So, in order to combat this, think about establishing an internal process for managing accounts payable and verifying that suppliers are reporting positive payment behaviour to your credit referencing agency. Ultimately, you want to ensure that your business is seen as reliable. 

As well as ensuring your business makes payments on time, you need to ensure that you’re managing your business’s credit utilisation and any hard inquiries. It is recommended that you never fully use the credit that is available to your business, as this shows you’re able to manage the business’s operations and short-term debt without heavily relying on financing. If your business’s credit limit increases, your available buffer will grow, and this will naturally help you reduce credit utilisation, even if your debt remains the same. 

Further to this, ensure that you only apply for credit when absolutely necessary because every time you apply for credit, a hard inquiry is placed on your file. This will automatically decrease your company’s credit score. To help prevent this, you can also make sure that you leverage pre-qualification tools or quotes that result in soft, score-neutral inquiries first. 

Lastly, to make sure that you’re maintaining a high company credit score, you want to ensure that you continuously audit and maintain your data hygiene. You’ll need to take responsibility to pull and review your company’s reports on an annual basis, looking specifically for outdated business addresses, errors in public record listings, or incorrect trade lines. 

Also, ensure that your company’s legal name and physical address are always up to date. Dispute any discrepancies on your company's credit report as soon as possible. You need to ensure your details are consistent across all corporate filings and banking documents to prevent your credit files from becoming fragmented or delayed. 

 

If you feel that your business needs financial support, many resources are around to help with this. Equally, ensuring that a reliable credit check is performed by us at Creditserve is vital to the overall success of your business. 

Contact us today on 01992 414222 for more information.