Many people are aware of their personal credit score. Anyone who was ever applied for a mortgage or personal loan will be aware that their credit history is searched and that the approval of a loan is heavily reliant upon a positive credit score.
The same principles apply to a business seeking funding. If you are a business owner, then maintaining a good credit score is an important factor in securing business financing as and when you need it.
Finding out your credit score
So how do you influence your business credit score?
The first thing to do is to know exactly what’s on it. To do this, you’ll check your credit report and find out what your current credit rating is. Companies such as Equifax and Experian will be able to provide you with your credit score. These reports are not free but they are well worth the cost if you are seeking to improve your credit score and secure the much-needed finance that your business development requires.
Once you know your credit score, you can begin to work on gathering the information required to increase your score if necessary. You’ll need to be able to convince finance companies that you are a safe bet that any money loaned to you will be repaid in full and on time.
Improving your credit score
Finance companies require tangible evidence and the best way to do this is to pay your own bills on time. This is one of the most important factors making up credit rating. It is a demonstrable way that you can show that your business is generating sufficient money to pay bills and that you, as the owner, are able to meet your responsibilities.
Another important aspect of your credit rating is whether or not you have used any existing credit available to you to its maximum or not. For example, if you have available credit of £10,000 on your company’s credit cards and you have only used £1,000 of this limit, then your credit utilisation ratio is 10%. From the point of view of a finance company this will often be seen as a safe bet as a standard rule of thumb in achieving and maintaining a high credit score is to keep your ratio under 15%.
There are a number of ways in which you can improve this if you need to by either paying off some of your balance or increasing your credit limit. One way of increasing your credit limit is to ask your credit card provider to simply raise the limit. You could also consider opening up a new line of credit with no intention of using it. Suddenly, the amount of credit available to you has increased, but the amount that you have used remains the same and so you have enhanced your credit utilisation ratio.
You could also consider establishing credit accounts with some of your suppliers particularly those with whom you have a history of good payment relationship. This will, in most cases, undoubtedly improve your business credit score.
You can also send information to credit reporting agencies by adding trade references to your company’s credit file. The better the payment history on your file, the better it is for you when your credit history is being checked.
You must also make sure that any information on your credit report is accurate and up-to-date. If you see something on your report such as an unpaid account that shouldn’t be there, you must call to dispute it. This is a critical way to improve your business credit score.
Furthermore, if any of your debts went to collections, you must ensure that when you pay the outstanding amount. In some cases, the relevant agency will then delete the negative account from your credit report although the late payment may remain on your account with other agencies.
It is good practice in any business to play close attention to what is being recorded on your credit score from time to time as information may be added in error without your knowledge. Keeping track of your business credit score and ensuring that it remains high will stand you in good stead when the need arises to apply for business finance.
A good credit record is only part of the story though. To secure funding or investment, you will need a strong business plan and believable financial forecasts. These are areas in which TWP Accountants can offer you intelligence, insight, and a long track record of success.
For further advice and information on this or any other topic, contact TWP Accountants on 01932 704 700 or email your accounting partner at email@example.com.