Introduction to credit scores
Business credit scores range from 0-100 where 0 is the highest risk and 100 is the least risk.
Credit scores are used by third parties such as suppliers and lenders to assess the risk and creditworthiness of a business. Limited companies and LLPs have a business credit score based on the companies financial and non-financial data. Sole traders and unincorporated partnerships have a score based on their personal (or consumer) credit score.
There are various companies who calculate credit scores based on a range of factors and the algorithms which each company determines. Experian is the prime bureau in the UK used by the major lenders and companies.
Experian’s credit scores, also known as Delphi scores, are grouped into bands from A-G.
Why are credit scores important?
A credit score of between 81 and 90, also known as a “B” credit score, will mean that:
- You receive good terms from lenders, subject to the merits of the individual proposition. Ie you should meet their credit hurdle and your interest rates should be lower than a company with a worse credit score.
- Your suppliers should be happy to work with you and offer you credit terms. They will be able to offer you a good credit limit, especially important if they use trade indemnity cover to insure their debtor book.
- Your profile will be good and this could be important if you are tendering for new customers, enter into joint venture agreements, aiming to recruit senior staff or intending to sell your business in the near future.
How to maintain your “B” credit score and improve to an “A”
Only 29% of business owners know their own credit score and those who track it, are 6 times more likely to be in the “A” range.
If you were to achieve an A credit score, you would most likely receive better terms from lenders, the best they can offer. Plus suppliers may even offer you better prices as well as improved credit terms as you’d be a company they really wanted to work with.
There are almost 100 different factors which affect your business credit score, such as your financial results, your filings at Companies House, your payment performance as reported by your larger suppliers and the searches which others conduct on your company.
Using Capitalise for Business you are able to monitor your credit score and those of your customers and suppliers. When you spot any changes, you can then take action and aim to maintain, or increase, your credit score.
