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A Guide to Improving your Business’s Credit Score


Managing a business is both an exciting and stressful time, sometimes in equal measure, sometimes it’s just stressful. This guide is to help you improve your business’s credit score.

Making sure the financial foundations of your business is sold will help to prevent extra stress. Stress that could easily be avoided. Maintaining a credit score is in some ways like cleaning your teeth. It’s not much fun, and there’s nothing tangible to show for it after doing so. But, over time, if you neglect it, you will have undesired, and possibly painful outcomes that won’t be easy to rectify.

There are many ways that a credit score can be impacted. Each opportunity to make an impression can be positive or negative, and the accumulation of these will determine the level and trajectory of your business’s score. This should be a strong motivation for business leaders to improve their understanding of credit scores and how they work.

In this guide, we’ll discuss what a credit score is and why it’s important for your business to maintain a good one. We’ll also dive deeper, to look at some tips on how to best look after your credit score.

How to improve your businesses credit score

Before we look at ways to improve a credit score for your business, it might be useful to define some terms.

What is a business credit score?

You’re probably aware of having a personal credit rating, (or score, the terms are used interchangeably), but businesses have their own rating too.

A business credit score can also be called a corporate credit score. In simple terms, it is a numerical assessment of creditworthiness. The assessment is performed by a credit rating agency. Each agency has its own method for performing an assessment, and ratings are not necessarily identical when performed by different agencies.

All different types of entities can be rated in this way. Ranging from individuals to countries and supra-national bodies.

The business credit score is a way of communicating the rating agency’s opinion of creditworthiness. That is, the likelihood of them defaulting on a debt or other financial obligation.

The business credit score can be used by potential investors and lenders to provide insight into their business decisions. For example, a bank may choose to only lend to corporate entities with a credit score over a certain level. Alternatively, an investor may try to negotiate for more equity based on a poor credit score, implying a higher risk.

Why is a ‘good’ credit score important?

Businesses, at some point, usually need to take on debt or attract funding. Sometimes a company may issue corporate debt (in the form of company bonds) to fund its business plan. Before any of these things can take place, investors and lenders need to know just how financially stable a company is.

To put it simply, “will this business pay me back?”

This isn’t as simple a question as it sounds. There are innumerable factors that can affect the financial position of a business and therefore its ability to meet financial obligations. These can range from macro-economic situations, (think sanctions) to operating in markets (or countries) that are just considered as inherently riskier to operate in.

Maintaining a good business credit score is important therefore to reassure lenders and investors.

A business credit score can impact such things as being eligible to access lines of credit. If credit is available, a poor score may limit how much credit is available and the rates at which you can borrow.

A business credit score, unlike a personal score, is available for anyone to access. It is public domain, meaning that customers, suppliers and firms that support your logistical and supply chains can see it. Which might mean they think twice about doing business with you at all.

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Improve your business’s credit score

There are ways to improve a business credit score. By sticking to this best practice guide, your score should improve and maintain a strong position, opening doors and making sure you don’t overpay on lines of credit.

Pay your bills

This sounds simple enough, but that’s why it’s easy to fall foul of. Paying bills includes all your invoices and credit repayments. Managing this in a household can be tricky enough, with a bill getting easily forgotten or misplaced, but across a business, it can be even more difficult.

Setting up an accounts payable system is a good way to manage expenses and ensure payment dates aren’t missed. Accounting software solutions can also be used to automate some payments, removing the responsibility and mitigating human error. Keeping a close eye on your cash flow can also help you prevent getting into situations where you may struggle to meet obligations.

Interrogate your score

Take the time to regularly look at your own score. Try to understand how it’s been calculated and look at the elements that have been taken into consideration. If you believe a mistake has been made, or if you don’t understand it, contact the rating agency. Mistakes can be made, and they will be obliged to remove them and correct your score if they are genuine.

Don’t chase credit

Applying for credit leaves an imprint on your business credit score. If you’re turned down for a credit facility, don’t keep applying with different lenders. Talk to a lender following a refusal and understand how they came to the decision. Then work on making improvements and developing the business, rather than chasing a credit line that might not be available to you. Each application leaves its mark, a rejected application may have a negative impact, repeating applications over a short time can apply downward pressure to your score that you don’t need.

Watch that overdraft

Much like keeping an eye on your cash flow, being watchful of overdrafts and other facilities (credit cards) can mean avoiding needless mistakes such as missing payment dates. You may be easily able to meet your financial obligations, but if your credit score shows that each month you miss a payment or get charged a fee, it will give an appearance of poor/tight cash flows.

Communicate with your supply chain

Should you ever get in a position where you can see cash will be tight. Talk to your suppliers and let them know. You may be able to negotiate extensions or changes to payment terms, but at the very least, it may help them understand your situation. In turn, if they understand, they may well not report you for late payments, which will then not suppress your business credit score. Having positive relationships with your supply chain can help in this scenario. If your business doesn’t provide any context to them, it will look to an outsider that you’re just not able to pay, which then leaves them with nowhere to go except report you and seek to recover the payment in other ways.

In summary

We’ve looked at what business credit scores are and why they’re important. Having this knowledge can help your business stay ahead of potential issues and prevent overpaying for credit facilities unnecessarily.

Our guide has covered aspects for your business to cover in order to protect and build its credit score. Following these steps will position your business on solid ground so that if something unexpected does happen, you can deal with it from a position of strength.

Managing cash flows and monitoring the financial aspects of a business is not easy. Especially when there are so many other areas of business that require your attention. The solution is simple - work with professional finance experts to overcome these challenges and set your business up for success.

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Whilst we’re able to carry out the accounting basics, we’re ready and waiting to help our community with so much more. We work to ensure that you see the bigger picture for your business. We'll help you look at how to optimise revenue or margins, where to invest in headcount, and when to go into a fundraising round. Talk to us today to see how we can help you.

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