Why are credit scores different between agencies?
It’s a question commonly asked regarding why credit scores are different between agencies. Trying to keep up with different credit scores can leave you feeling confused and frustrated.
Here, we’ll look at why credit scores are different between agencies, as well as understanding your new business credit score for businesses that have never had one before. We’ll also discuss what you should focus on when monitoring your business credit score.
Credit referencing agencies and your business’s financial health
The primary role of credit referencing agencies is to collect and maintain information that paints a picture of your business’s financial health and behaviour. This information will include payment history on loans and public records such as insolvencies.
Lenders will look at this information, including the business’s credit score from one or more of these credit referencing agencies. This information will prove to lenders that your business either handles debt responsibly or it doesn’t.
Therefore, if your business’s credit score is higher, it indicates that your business is less of a risk, making it easier to secure credit at more favourable terms.
Why the numbers don't always match up
So, why are credit scores different between agencies? One would think that, if the same information is being used by these agencies, your business credit score would be the same. Here are the key reasons:
Different data sets (who reports what, and when)
The main reason for differing business credit scores is that each agency receives different information. For example, banks might regularly report your business’s credit card payments to one agency but less frequently to another.
Also, even if these entities do report your business’s information to all credit referencing agencies, the information may also show up on their reports at different times. So, the slight delay in data updates means that your credit report may be slightly different at any given time.
Proprietary scoring models
Another reason why your business credit score may be different through different credit referencing agencies is that these agencies don’t all use the same formula.
Each credit reference agency will use different weighting factors, placing emphasis on different aspects of your business’s credit history. One model may heavily penalise late payment, while another one might be more lenient with this, specifically if it is an isolated incident and your previous payment history is more reliable.
Factors generally considered include:
- Payment history: Are you making sure your business’s payments are being made on time?
- Amounts owed/credit utilisation: How much of your credit is being used? It is always recommended that a lower amount be used.
- Length of credit history: The length of time that your credit accounts have been open - the longer, the better
- New credit: Have any new accounts been opened?
- Credit mix: Does your business have a healthy mix of different credit types?
Different versions of scoring models
Even if these agencies use a similar overarching model to determine the financial health of your business, there can still be different versions of it. Credit scoring models are continuously being updated, so one agency might be using an older version and another a newer one. Naturally, this will result in different credit scores between agencies.
What should you focus on?
It’s important to note that, when your credit scores are different between agencies, there are alternative steps that you could take when analysing the financial health of your business. For example:
Review all credit reports regularly
Make sure that you review all of the credit reports from each credit referencing agency because it is the information those reports give that matters most. This way, you can check for accuracy and ensure that all the information is correct and up-to-date. Also, you’ll be able to spot any fraud on your accounts, such as any unexplained accounts.
Understand the underlying data
Instead of worrying about the different credit scores between agencies, look at the detailed information on the reports. Are there any late payments on your report, or is your credit utilisation high on any accounts? These are the factors that should be looked at as they are what influence your business credit score.
Focus on core credit health principles
So, focus on what you can do to improve your business credit score, as the actions you take to improve one credit score will generally improve the others.
Focus on:
- Pay your bills on time, every time.
- Keep your credit utilisation low by aiming to use no more than 30% of your available credit on any revolving account.
- Maintain a long credit history.
- Apply for new credit sparingly.
- Diversify your credit mix responsibly.
Dispute errors promptly
If you happen to notice any inaccuracies on your business credit report, be sure to report this to the relevant credit referencing agency as it is legally obliged to investigate and correct any inaccuracies.
But what about a new business’s credit score?
Even if your business is new, you should be taking active steps to start developing a credit score for it. Here are a few things you should focus on when trying to develop a credit score for a new business:
Establish your business
You’ll need to register your business as a legal entity, as this will add credibility and will help separate your business and personal finances. Next, you’ll need to open up a business bank account so that you can keep your business transactions separate from your personal ones, too.
Build your credit history
Once you have established your business, you can start building up your credit history as a new business. Consider applying for a business credit card or any other form of business credit, such as overdrafts. It is important that you always keep up with your payments, as this is the best foundation for establishing a good credit score.
Further to this, ensure that you maintain good relationships with your suppliers, as this will help you secure favourable credit terms and positive feedback on your credit profile. Lastly, make sure that you file your accounts and submit your tax returns on time, as this also plays a role in boosting your new business’s credit score.
Monitor your credit report and score
Make sure that you check your credit report regularly for any errors or fraudulent activity. If you spot any inaccuracies, make sure that you report them immediately.
It’s useful to understand what factors contribute to your new business credit score, such as payment history, total debt and if you have any recent credit applications.
Avoid anything that will hurt your new business credit score
For example, avoid applying for too many loans or credit cards at the same time, as this will negatively impact your business’s credit score. Also, stay clear of County Court Judgments (CCJs) as any legal notices against your business will massively harm your new business credit score.
So, while your business credit scores may be different between agencies due to differing data, reporting times, and proprietary scoring models, the core principles of good credit health remain the same.
By understanding this and focusing on responsible financial habits, you can build and maintain a strong credit profile for your business that will serve you well, no matter which score a lender chooses to look at.
Also, if you’re looking for efficient credit check packages, Creditserve will help you run these on any company you may be looking to work with. With our services, you’ll be able to assess the risk efficiently, making informed decisions that allow you to mitigate financial risks.
Contact us at 01992 414222 for more information!
