You may not know your business credit score, but it’s certain that you have one. It falls somewhere between 300 (the worst possible) and 850 (absolutely perfect) and it’s the magic number that will unlock credit, determine the interest rate – and potentially mean the difference between success and failure for your company. So if your business credit score isn’t what it should be, what can you do about it?
Well, the first thing is to accept that a business credit score is built over years and can’t be changed overnight. However, that’s not to say that there aren’t things you can do to make a relatively quick difference.
The first thing you need to do is monitor your credit. Why? Because the more you know about it, the more you can do to improve it. In simple terms, your business credit score gauges your reliability as a borrower and predicts the likelihood that you will pay back your business loans on time and in full. A score at the top end reassures lenders that they are unlikely to encounter any problems, whilst a low score is a clear warning to stay away (or charge a prohibitively high interest rate).
How your business credit score is compiled
Each credit bureau has its own proprietary algorithm for compiling your business credit score, and these formulae are a closely guarded secret. However, it’s generally agreed that they use a similar methodology, taking into account the following factors:
- Your payment history (including bankruptcies and court judgements)
- The amount of debt you have outstanding
- The age of your open credit accounts
- The diversity of your credit accounts
- Your credit usage (compared to your limits
- Credit enquiries you have recently made
How to monitor your credit score
First and foremost, you should make sure you are well versed in your business credit report. This document summarises your borrowing and repayment history and is the basis for calculating your business credit score. If it shows a history of late payment, make a concerted effort to pay all your bills on time. If it shows that you’re using all your credit lines to the full, try to repay some money. You can access your report free from any of the main credit agencies.
Of course, there may be negative information in the report that simply isn’t accurate. In fact, statistics show that 20% of credit reports contain at least one error. Identify these mistakes and ensure that credit bureaux rectify them and you will improve your score – and potentially save yourself thousands in the future. It’s worth checking reports from each agency, as they may contain different errors – and of course, bear in mind that unexpected negative information may not be an error in the first place. Once you have reported any mistakes, you should receive a response from the credit bureau concerned within 30 days.
As you can see, there are no easy answers and no quick fixes if your business credit score is at the bottom end. However, if you correct any errors in your report and remedy any problem behaviour, you should be well placed to boost your score – and your business prospects.