Funding growth, expansion or other working capital requirements is always something on the minds of business owners. If you are seeking a business loan facility, your business credit score will be used as an indicator of your ability to repay the loan. In this article we explain what a business credit score is, why you want this to be a good score, what influences it and tips to improve it.
What is a business credit score?
Your business credit score is used by financial institutions (banks/lenders) as an indicator of your creditworthiness. It calculated using the information listed on your company credit file.
In addition to financial institutions assessing your creditworthiness, your business credit score can be used by businesses who are considering working with you, as it provides details on your payment history and if you have made any defaults.
Why do you want to have a good business credit score?
Having a good business credit score improves your chances of being able to secure finance to support and grow your business. It can also help to ensure you receive favourable terms on your loan. Hence it’s important to ensure your credit score remains at a positive level.
If you find that your credit score is slipping lower than usual there are ways in which you can improve this.
What influences your business credit score?
Depending on the credit reporting agency, your business credit score will range from zero to 1,000 or zero to 1,200 – the higher your score the better. It is calculated using:
- Business credit and finance activities
Business payment history, credit enquiries, judgements and defaults, etc.
- Details of your business
Industry, trading history, date of establishment and the size of your business, and so on.
Tips to improve your credit score
Maintain a low credit utilisation ratio
Calculated by looking at how much credit has been used vs how much is available. An ideal credit utilisation ratio is around 15%*. There are various ways to ensure this:
- Pay your balances
- An increase in credit limit
- New line of credit or other finance facility
- Decrease credit card spending
Pay on time
Late payments on your bills can impact your credit score. It’s best practice to pay bills on time not only to improve your credit score but to maintain good relationships with your suppliers.
Ensure ATO repayments are up-to-date
ATO debt can impact your business credit score. The ATO has the discretion to report businesses that owe more than $10,000 in ATO payments and have a debt that is more than 90 days overdue.
Build and maintain strong relationships
Work with vendors and suppliers – communicate effectively and build a good reputation.
Don’t avoid using credit but use the credit only when you need it
Think about it – if you avoid using credit altogether then financial institutions have nothing to assess your business on. Use credit, but use it effectively, efficiently and pay it back on time.
Check your Credit Report and monitor it regularly
Checking your credit report can ensure you know what your score is and also allows you to see what factors are affecting it.
A business credit score is used by financial institutions (and on some occasions potential suppliers) to determine your creditworthiness. Whether you are applying for a business loan, or other banking facilities, having a good credit score may help you to 1) secure the lending facility, and 2) receive good payments terms and rates – reducing the cost of borrowing.