Why do I need a good business credit score?

A business credit score helps lenders assess the financial health and reliability of your company by analysing how you manage debt and other financial obligations. Generated by agencies such as Experian and Equifax, your score can also influence how suppliers and customers view your business.

Key takeaways

• Your business credit score is a measure of the creditworthiness of your business, as calculated by a credit reference agency

• A higher score is generally better

• Credit agencies use different scales and calculation methods

• Having a good business credit score makes it easier to borrow money on better terms

• A higher score can also encourage other companies to do business with you
  

Your business credit score tells banks, lenders and other interested parties, such as suppliers, how well your company manages debt and whether it pays its bills on time. A business with a good credit score presents a lower risk of defaulting on any credit payments, while one with a poor credit score presents a higher risk. The higher risk you are deemed to be, the more difficult it is to qualify for business credit cards and business loans.

What is a good business credit score?

A good business credit score is one that suggests you are a low credit risk to lenders and suppliers. What constitutes a good business credit score varies between credit reference agencies, all of which have their own scales. But, generally speaking, the higher your score, the better.

Experian, for example, uses a 0-100 scale that splits companies into three main sections:

• Low risk – A good credit score of 80 or above

• Medium risk – An average credit score of between 50 and 79

• High risk – A poor credit score of under 50

With Equifax, the scale is 0-1,000 and is split into:

• Low risk – 811 or above

• Medium risk – 438-810

• High risk – Below 438

And at TransUnion, the scale runs from 300 to 850, split as follows:

• Low risk – 781-850

• Medium risk – 661-780

• High risk – 300-660

Find out how to check your business credit score with our step-by-step guide: How to check your business credit report.

Why do I need a good business credit score?

A good credit score makes your company an attractive proposition to banks and other lenders. On the other hand, a poor credit score can severely limit your options, meaning you may struggle to borrow money and will almost certainly fail to qualify for the best deals. The main advantages of having a good business credit score are:

• You have your pick of business loans and credit cards – With a good credit score, you can get better interest rates and terms

• You can borrow more – Banks are more comfortable lending large amounts to companies with good credit scores

• You can work with the best suppliers – Having a good business credit score shows suppliers you are trustworthy

• You can lease property and equipment – Leasing companies may also consider your business credit score when setting their terms

How is a business credit score calculated?

Credit reference agencies set business credit scores by collecting information on business transactions and bank accounts. Factors they consider when calculating your business credit score include:

• Bill payment history

• Debt repayment history

• Total debt held

• Types of debt held

• Rejected finance applications

What business credit score do you need to get a business loan?

The business credit score you need to be eligible for a business loan varies between lenders. While lenders offering the best interest rates and terms look for high credit scores, those offering less attractive deals may consider applications from companies with lower scores.

Other factors that lenders look at when considering business loan applications include:

• Cash-flow analysis – for example, via Xero or QuickBooks accounting software

• Business bank statements, which you can share to demonstrate overall financial health

• Business history, such as how long you have been trading

• Industry trends, including the market conditions in your sector

What business credit score do you need to get a business credit card

The business credit score you need to qualify for a business credit card depends on the type of business credit card you want. Not all card companies have the same requirements. However, using the Experian scale of 0-100:

• A score of 80 to 100 should allow you to qualify for all business credit cards

• A score of between 40 and 80 may prevent you from getting the very best deals

• A score of below 40 probably limits you to business credit cards for companies with a poor credit history

How can I improve my business credit score?

Your business credit score changes depending on your actions. And that means there are lots of ways to improve your business credit score.

Steps you can take include:

• Paying your bills on time

• Reducing the total amount of credit available to the business

• Closing dormant bank accounts

• Checking your credit report regularly for any errors

• Keeping your company information – address and so on – up to date