What is a business credit score? (+ how to improve it)

Whether you’ve checked it or not, your business has a credit score.

A business credit score (sometimes called a business credit rating) performs a similar function to your personal credit score: it helps prospective creditors get an idea of your financial history when deciding whether to lend to you. 

Your credit score is an important factor in securing loans and investments. However, attracting financiers is not the only reason that this score matters. Paying attention to your score can also help you secure new partnerships and suppliers and, in some cases, even influence your insurance premiums. 

In this article, we’ll take you through what a business credit score is, why it matters, and steps you can take to improve yours.

What is a business credit score?

A business credit score is a number or symbol representing the risk of making financial agreements with your company. The higher the credit score, the lower the risk. 

Your credit score forms part of a credit report, which is provided when someone does a credit check on you. These reports are compiled and distributed by the credit reference agencies (CRAs), who collate publicly available financial information to help organisations and individuals make informed decisions about who to lend to and make financial ties with. 

You don’t have one universal credit score or standard credit report. Each provider will use their own criteria to assess your financial situation. However, similar factors are usually taken into consideration. 

In the UK, there are three main CRAs: Experian, Equifax and TransUnion. You can access a statutory credit report from each of the CRAs. This report will show a basic overview of your credit history and the information they hold on you.  It will not include your score. 

While it’s free to access a personal statutory credit report in the UK, the CRAs don’t have a legal obligation to offer this service to businesses without charge. Some offer basic reporting for free, after which they tend to charge a fee.

Experian and Equifax offer more comprehensive business credit reports that include a score. Credit bureaus such as Dun & Bradstreet, Credit Passport, and CreditSafe, also provide detailed credit reporting alongside other business analytics and insights. 

The CRAs collect data from a variety of sources to make their assessment, including public records, trade partnerships, and industry analyses. Companies House, the government agency responsible for incorporating and dissolving companies and keeping a record of their activity, is an important source of information on incorporated companies. 

Along with your credit score, a detailed business credit report will include a brief assessment of how much of a credit risk your company is and the likelihood of you defaulting on your financial obligations. 

A business credit report also includes information such as:

• Your registered business name 
• Date of incorporation and age of your company
• Primary contact details
• Principal activity of your business
• Snapshot of your financial health, including total turnover (i.e. total revenue) 
• Balance sheet, which includes a breakdown of long-term assets (resources owned or controlled by your business), liabilities (financial obligations) and working capital (money your business needs to operate from day to day)
• Cash flow, which details what money flows in and out of your business 
• Payment history, showing habits of meeting past financial obligations
• Public records, including county court judgments (CCJs) that you’ve incurred because you have failed to pay past debts, and insolvencies.

Here are sample reports from: 

• Experian
• Equifax

What is the purpose of a business credit score?

When you want to take out a mortgage or sign up for a new credit card, the prospective lender will do a credit check on you to gauge the financial risk they are taking on. It’s no different for businesses. 

Lenders want to know if you’ll pay back what you owe, future partners need to determine the risk of going into business with you, and suppliers must see that you’ll keep up with your side of the bargain. 

Your business credit score, as an important feature of your business credit report, will give them the tools they need to make their decision. 

Your business credit score is important if you would like to:

• Seek financing and investment 
• Secure a loan to keep you afloat during tough times
• Access funds to start a new project
• Strike up a new partnership
• Use a new supplier
• Taking out a new insurance policy

Basically, if anyone wants to check on your financial situation before signing on the dotted line, they can do so with a business credit check. (The reverse is also true — if you would like to enter into an agreement with another company, you can do a credit check on them to assess the risk.)

Not only will your credit score determine whether your business is able to secure a new financial deal, but what sort of deal you get. Your credit score may be a factor in how flexible the terms of a new credit agreement are, the interest rate offered on a loan, or, in some cases, the insurance premiums you pay.

What factors can negatively impact a business credit score?

While each CRA has its own specific criteria for determining a business credit score, certain factors apply across the board. These include:

• A history of late or missed payments to lenders and suppliers
• Legal proceedings, like County Court Judgments 
• Insolvencies (like bankruptcy)
• Late filing with Companies House for incorporated companies

Other issues that can have a negative impact include:

• Coming close to your available credit limit, as this can illustrate to future lenders that you are overly reliant on credit.
• Making too many credit applications in a short period — a sign that you could be in financial trouble 
• Being involved in a high-risk industry — an important piece of information for prospective lenders and partners to have if they are going to create financial ties

If you are a new company, it may take time to build up your credit history. When you’re just starting out, you’re not yet able to show your financial responsibility, and this can impact what new lenders, investors and partners see.

How to check your business score

To check your business credit score, create an account with the credit reference agency of your choice:

• Experian
• Equifax
• Dun & Bradstreet
• Credit Passport
• Creditsafe

Some of the reference agencies offer a free method to check your score. You can then opt to pay for extras such as a comprehensive risk assessment, tips to boost your credit score, and alerts to significant changes in your score. 

What is a good credit score for a business?

There’s no universal good business credit score — each credit reference agency has its own scoring system. They consider data from various sources, such as public records, financial information, and industry risk, and create their score based on their unique weighting criteria.  

Certain agencies, like Experian and Dun & Bradstreet, use a 0-100 scale, while Equifax uses a 0-1000 scale. Some include a letter grade — Experian may give you an “A” alongside your numerical value, while companies like Credit Passport base their entire system on a letter score, with the highest rating being an A++ and the lowest E. 

In addition to your score, most credit reports offer a comprehensive summary outlining the level of risk shown in your profile.

To get an idea of a good numerical credit score, Experian’s values (in their 0 - 100 scale) are as follows:

• Low risk: 80 or over
• Medium risk: 40 to 80
• High risk: 40 or below

How to improve your business credit score

Because there’s no universal calculation for business credit scores, there’s no simple formula for upping your rating. 

Plus, many measures you can take to improve your business credit score, such as making consistent on-time payments, do not produce overnight results.

If you have just started your business, you may be looking to build a business credit score in the UK from scratch. There’s an added catch-22 here — you need a credit history to secure credit, but you need credit to have a credit history. 

The bottom line is, wherever you’re at, there’s no quick fix. 

However, there are measures you can take to surely and steadily build your credit profile to help you secure credit, investment, and valuable partnerships:

• Keep track of your business credit score. This may sound obvious, but many businesses are not aware of the reason their applications may be rejected or they fail to secure funding. 
• Pay your bills on time. This includes credit cards, loan repayments, and accounts from suppliers. Ensure you have enough money in your business account to cover direct debits and standing orders.
• File in full and on time with Companies House if you are incorporated. This will help show future investors and lenders that your finances are organised and transparent. It’s also important to ensure publicly available information is as up-to-date as possible.

• Avoid taking out too many credit applications at once.

When you apply for credit, the prospective lender may run a credit check, which could be noted on your file. Too many credit checks on your business in a short time can signal to future lenders that you are desperate for funds and battling to secure them.  

• Watch your levels of debt.

Financial partners are looking to see that you can manage your debt effectively. If you skid close to the amount of credit you have available, it could signal that you are struggling with cash flow. 
• Get debt counselling if needed. CCJs and insolvencies are a big red flag for lenders and investors alike. If you are struggling to stay on top of your debt, there is help available from sources like the Business Debtline (a registered charity that offers expert advice). You can also seek help from HMRC (specifically on tax-related debt) and your bank (regarding consolidating and managing your business debt). 

• Check your personal credit score. While your personal and business credit scores are two different things, there are situations when your personal credit rating can impact your company’s ability to secure investment or get a loan. If you’re a founder of a new company and need to build up your credit record, investors may look to your personal credit score as a means of assessing risk. Likewise, if you are providing a personal guarantee for your business, a loan provider may want to view your personal credit history. 

Quickfire summary

Your business credit score is a useful tool that helps prospective investors, lenders, and partners decide whether they want to form financial ties with you. As part of your credit report, this rating shows the risk of forming a credit arrangement with you. 

However, its use is not limited to creditors. Suppliers and potential business partners may look at your credit score before deciding to do business with you. You can check your business credit score through one of the credit agencies that operate in the UK. 

Each organisation has their own statistical model and set of calculation criteria — there is no universal business credit score rating system.

While improving your credit score can’t be achieved overnight, there are steps that you can take to move the dial in the right direction. These include paying all your bills on time, watching your levels of debt, and, if you are incorporated, ensuring that your accounts are filed in full with Companies House.