Whilst a business credit rating has the same purpose as a personal credit rating, the two do not work in the same way. Personal credit takes into account everything from loans and credit cards to your bills and mortgage payments, whereas business credit is calculated on completely different factors, such as how long the business has been trading and how quickly it pays it bills to suppliers.

The importance of your business credit rating really comes into play when you wish to borrow money as lenders want proof that your business is safe to invest in, that you are likely to pay installments in full and on time, and your track record suggests you are unlikely to default in the future.

Whether you are a brand new business starting from the ground up, or are looking to improve your business credit rating, this guide should offer you some advice that will help.

Organise Your Business

The first step in building a business credit rating is to organise your business. The more professional and organised your business appears, the more likely it is that investors will feel safe with you. This means registering your business and forming it as a limited company. You could also register as a sole trader or partnership, but limited companies are seen as a safer bet for lenders.

You may also want to think about renting a business space which is outside of your own home. For new businesses, this can seem like an unnecessary expense, if you are able to work from your own home, but a registered business address and landline phone number helps to legitimise your business in the eyes of investors. This does not necessarily mean that you need to move into a property, as many office buildings provide a virtual office space and landline number from which you can work remotely.

Get Your Credit Report

Find out your credit rating by applying for your credit report. A credit report service such as Experian is the quickest and easiest way to do this, and Experian also offers a free service at the most basic level. Businesses might want to pay the small fee for the higher levels, though, as this will give you more in-depth details about your credit score.

Your credit report will show your financial history, based on payment reliability and how dependent your business has been on credit in the past. It will also give you advice on areas that you need to look at, so you can focus on these to improve your future credit rating.

Once you have your credit score, keep an eye on it, and set up alerts that tell you when your credit record is searched or updated. This allows you to address any issues as they crop up.

If You Have No Credit History

For new businesses who have not built up a credit score yet, the report may instead use your personal credit history – although a limited company works as a separate legal entity from the individual. This means that it is crucial that you are careful with your personal spending whilst building your business, until your business has had a chance to establish a score of its own.

When you start your limited company, you must set up a business bank account straight away, as this will be assessed as part of your credit scoring.

Apply For A Business Credit Card

Whilst it can be worrying to apply for any form of credit when you are a new business, as you don’t want to start off in debt, a business credit card is the fastest and least dangerous way to borrow and build your credit rating.

You are more likely to be approved for a credit card than any other line of credit, and they are easy to use and pay off if you only use them for business expenses you can afford – as well as paying off the full balance every month.

Business credit cards also often come with a variety of perks, such as discounts, that can boost your business.

Try to limit the number of applications for credit you make in a short space of time, as credit searches are recorded on your credit record and too many make your company look financially insecure.


Work With Other SMEs

Small businesses and traders are likely to be happier to work with other new businesses, offering you a better chance to build your credit quickly. Before you choose a supplier, check their credit positions to ensure that they are unlikely to cause problems for your own credit score.

Once you are working with a business, be certain to pay off all of your accounts in full and on time, just as you would with any other form of credit. This will build your reputation with other businesses, making other, bigger companies aware of your business and making it easier to form new relationships and partnerships.

A good relationship with other businesses, and a healthy history of making payments on time will help you build your reputation, both with customers and lenders. This should help to open doors for you with regards to future lending.

All credit reference agencies collect data from a range of companies about how quickly their invoices have been paid, and you likely will not know if you are using a supplier who does this. Because of this it is always best to assume this data is being shared and make sure your payment records with all your suppliers are spotless.

Work With An Accountant To Build Your Score

For new businesses and those looking to improve a bad business credit score, working with an accounting firm could be the key to achieving a better score in a reasonable period of time. They can advise on how to build your score by following best practice principles with regards to your suppliers, as well as making sure you file your accounts on time, which is itself a factor in your credit score. Not only this but they can help you by advising on the best places for you to get credit based on your business requirements and size.

Here at TFMC our professional qualified accountants are here to help if you need advice on your current credit score,or any other financial or accounting matters. Please contact us on 0800 470 4820 or via email at info@tfmcentre.co.uk to find out more.

Martin Beckenham
Martin Beckenham

Martin Beckenham runs The Financial Management Centre in Ashford & Maidstone and serves as the head bookkeeper in Ashford and Maidstone. Martin is a Certified Bookkeeper with the Institute of Certified Bookkeepers. He has over 35 years of experience in the Finance and Administration sector, firstly in the Oil Industry and more recently as Head of Statutory Government body.