Understanding how to manage your company finances and improve your business credit score is an integral part of running and maintaining a profitable business. Whether you’re launching a startup or running an ongoing venture, business credit forms an integral part of your business's credit score.
Just like a personal credit score, business credit scores are all based on your financial history. They’re heavily used by banks and lenders to support decisions as to whether a business is likely to repay debt.
The strength of your business credit score affects whether or not your application is accepted and impacts the rates that you’ll be offered. That applies for a range of business products, from a business loan to opening a business bank account, or even something as simple as setting up a business mobile phone contract.
It’s been mandatory for the big four banks since 2018 to record your negative and positive credit history such as whether you’ve applied for credit, taken out a business credit card or business loan on a system called ‘Comprehensive Credit Reporting’.
Negative credit reporting is how Australia used to operate until March 2014. It relied on only taking note of businesses' negative credit activity such as borrowing money or applying for a credit card. This was a weak approach as it didn’t show whether or not businesses managed to repay the credit they used.
Positive credit reporting has replaced the old system. Also known as comprehensive credit reporting, It includes negative credit reporting information plus 24 months of repayment history, current accounts held by the customer, and what accounts they have opened or closed.
This provides a far more detailed and nuanced picture of an individual businesses’ credit history, allowing lenders to better understand the credit worthiness of a business. It means that lenders are able to offer better deals and place more trust in your business.
Your business credit score is incredibly similar to your own personal credit score. This is central to the decisions that banks and lenders will make when they consider lending to or investing in your business.
If you’re looking to secure a Business Credit Card (hyperlink to KB), Business Loan (Hyperlink to KB) or any other form for debt, then your score will determine a number of factors, including:
• What interest rates you'll be offered
• Whether you'll be approved for access to credit
• What size of a loan or credit limit you will be approved for
Unlike your personal credit score, business credit scores are available for anyone to be able to access and view. So your suppliers, customers and other organisations can access your business credit score.
Even if you’re not looking to access credit, your score could impact your daily business activities, from looking to secure insurance, to negotiating contracts or tenders.
Some other things to be mindful of which can negatively impact your score are:
• Not paying bills on time - including creditors and invoices, not just your utility bills
• Late loan repayments or missing bills will negatively impact your business credit score
• Maxing out your credit limits on a business credit card
• Be sure you’re keeping up to date with credit repayments and always pay it on time
• Restrict your credit applications for your business
• Making multiple requests for credit can make you look desperate which can drive your credit score down, especially if you’ve been rejected already
Despite the above, the positive news is that there’s a number of things that you can do to improve your business credit score:
• Start with checking your credit rating with Equifax If you see any information that’s incorrect you can contact the credit reference agency to get it corrected
• Open a business current account and make sure that it’s set up in your businesses’ name
• Secure some business credit, such as a Business Credit Card or Business Overdraft
• Pay your creditors and invoices early
• Build a strong personal credit rating
• Even if your business credit score is low, strong personal credit can help build your creditworthiness in the eyes of a lender
It’s important that you get to grips with your business credit score. However, there is no single Credit Reference Agency (CRA) and there isn’t a universal credit scoring system method. Different lenders and banks will use different Credit Reference Agencies when they’re needing to check your credit score.
Although personal and business credit scores are typically looked separately by CRAs, bemindful that some types of finance will take into account both scores.
The easiest way to find out your business credit score is to contact one of the business CRAs who can supply your business credit score either via an online account or send the report to you in the post.
From launching a startup, to day to day running of business, there’s a variety of skills and knowledge that you’ll need to develop over time. What’s more, as we’ve all had to navigate and adapt to the impact of the pandemic, it can be easy for business credit score checking to slip to the bottom of your ever growing ‘to do’ list.
It is however an important key part of your businesses’ underlying function. If you want to stay one step ahead of the game it’s crucial to be aware of your business credit score, and make conscious efforts to manage and improve it over time.