Business credit score: Importance, factors and tips to improve

7 min Read Published: 02 Nov 2023

What is a business credit score?A business credit score could affect how much money a company can borrow and how much that borrowing will cost. A credit score rates the quality of a potential borrower. If a business has a good credit score, it should be able to borrow money at an affordable rate. If it has a poor or low credit score, a company may struggle to find a lender, get the amount of money it needs or access credit at a competitive interest rate. Accessing finance is often a key part of growing a business, so a good credit score could be the difference between success and failure. In this article we will cover the basics of a business credit score, how it can be checked, how it can be improved and how it relates to a personal credit score.

What is a business credit score?

A business credit score is a numerical rating used to measure creditworthiness, just like a personal credit score. It shows how reliable a prospective borrower is likely to be when it comes to repaying debt. The score is calculated by assessing the business’s financial history, alongside other factors. The better your business’s credit score, the less risk the company poses to a lender offering credit, and the more likely it is to be approved for a loan.

We have more information on business loans in our article ‘What is a business loan?’.

A low score will mean it is harder for a business to access credit. If an application is successful, a low score could mean the business is offered a higher interest rate or smaller loan amount than was anticipated. Its score could be low because of past missed loan repayments, previous failed credit applications or a thin borrowing history.

It is important to keep in mind that no business or individual has one universal credit score. Credit scores are calculated by credit reference agencies (CRAs). These will each have a slightly different methodology that produces a slightly different score. This means that your business credit score can vary depending on which CRA the lender uses.

How to boost your business credit score

Improving your credit score will usually take time and patience. Making good financial decisions year after year will help your business grow into a reliable borrower. On top of these long-term best practices, there are also some easy changes you can make to boost your company’s credit score.

  • Pay promptly and on time: Failing to make agreed payments on time will usually damage a business’s credit score. It suggests company finances are not under control and that the business may have a cash flow issue – both characteristics that will put off a potential lender.
  • Submit accounts on time: Filing your business’s accounts late can indicate financial trouble, even if that is not the reason for the delay.
  • Professional auditing: Having your accounts professionally audited can boost your credit score as it reinforces that what has been submitted to Companies House is accurate.
  • No CCJs (County Court Judgments): These will have a negative effect on a business’s credit score, especially if they are not paid straight away.
  • Limit credit applications: Too many credit applications from a business in a short timeframe may suggest that it is struggling for cash.
  • Get a quote: Asking a prospective lender for a quote, or using an online eligibility checker, will give you a good idea of how much a loan will cost without the need to fill out a full application and potentially damage your credit score.
  • Cut down on credit accounts: Closing down any unused lines of credit will usually help your credit score, as lenders may be discouraged from lending you more money if you already have lots of credit available. However, in some cases it can be advantageous to keep accounts open in order to cut down the percentage of your available credit currently in use. For example, only using 25% of your available credit could suggest that your business has good financial restraint.
  • Keep your details up to date: Make sure your customers and suppliers, plus Companies House, CRAs and any relevant business directories, are all updated if your business address or status changes. Any conflicting information could damage your business credit score.
  • Keep an eye on your partners: Your business credit score can be affected by the financial position of the customers, vendors and suppliers your company has a financial relationship with.
  • Check your business credit score: Checking your credit score at regular intervals will mean you can react to any unexpected changes. With some CRAs, you can sign up to alerts to notify you if your score moves up or down. You can also check that all the information held on your business is correct.
  • Check your personal credit score: Just like with your company credit score, make sure you know when your personal credit score drops.
  • Open a business bank account: A business bank account can help you establish a credit file for your company and begin to build a financial history.
  • Get a business credit card: A business credit card can help your company build a borrowing history through initial short-term, small-scale borrowing. By repaying the debt in full every month, your business can create a pattern of reliable borrowing and grow its credit score. Find out more about the best business credit cards in our article ‘Compare the best and cheapest business credit cards’.

These tips may not suit every business, but try and pick at least a few that can help your company grow a borrowing history and boost its credit score. If your business has a low credit score, it may still be able to borrow money. Read our article ‘How to get a business loan with bad credit’ to learn more.

If your business credit score is in the right shape to apply for a business loan, read our article 'How do business loans work?' to get an idea of the next steps.

Why is a company credit check important?

A lender will use a credit check to help determine whether an application should be approved or not. It is a way to judge how likely the borrower is to repay the money on time or not. This information then informs what interest rate, loan term and loan amount can be offered to a particular applicant. Without a credit check, a lender would be risking lending money to a person or organisation with no way of paying back what they owe.

Learn more about applying for a business loan with our article ‘How to get a business loan’.

Other companies can also check a business’s credit score to see if it is a trustworthy business to deal with. Having a good credit score suggests that a business is reliable and able to repay its debts on time. A poor credit score suggests it may be struggling financially and may be risky to deal with.

In addition to a credit score, a credit check also shows background information on a business. This can include certain financial information, potential risk factors, banking history, trading history and details of any judgements or bankruptcies.

What affects a business credit score?

A business’s credit score is calculated by a credit reference agency (CRA). It analyses the company’s borrowing and trading history, alongside other details on its current situation. These can include:

  • The business name
  • The business address
  • The ownership details
  • Existing credit
  • Recent credit applications
  • Regular payments details
  • Information from utility suppliers
  • Company accounts
  • Details of individuals with an interest in the company

For a new business or a sole trader, this information may not exist or be limited. In that case, a lender could look at the credit file of the person applying, or reject the application entirely.

We explain more about the application process in our article 'Who can get a business loan?'.

How to check a business credit score for free

Multiple major credit reference agencies (CRAs) allow you to see your company’s credit file, including big names like Experian and Equifax. Keep in mind that each CRA will use a slightly different methodology to calculate your score. This means that it may vary depending on which CRA you check with and your business will not have one universal credit score.

You can find out what credit score your business has been given by a particular CRA by requesting it. In some cases, you may be able to get a one-off report on the information that CRA holds for free. However, you may find that you need to pay a fee in order to view your score. This could involve signing up to a monthly subscription in order to keep a regular watch on your credit score.

Will a business credit check affect your personal credit score?

A business credit score and a personal credit score are usually different, but you may find that both have an effect when it comes to getting a business loan.

The scores are separate when they are calculated from different credit files – one that is based on your company’s borrowing and financial history, and one that is based on your own. However, a small business with no credit history or a new start up may find that a lender looks at both company and individual credit records. This is especially likely if the business does not have any financial history for the credit reference agency (CRA) to assess. In the case of a sole trader or partnership, the business’s credit score and the personal credit scores of individuals running the company will be treated equally.

You can find out more about loans for new businesses in our article 'What are business startup loans?' and small businesses on our 'How do small business loans work?'.

If the business credit file is too limited to build a useful credit file, a personal credit file of an individual related to the business could be used instead. This could take the form of a ‘hard’ or ‘soft’ credit check. A hard credit check leaves a mark on your credit file and could affect your ability to borrow in the future.

The best way to find out if applying for a business loan is going to affect your personal credit score is to ask your chosen lender. It should be able to tell you what it will look at – or at least which credit agency it will use – to determine your business’s creditworthiness.

A good personal credit score can therefore be an important factor in accessing a business loan. Read our article 'The best way to check your credit score for free' to learn how to look up your score. We also have some tips on how to give it a boost in our article 'How to improve your credit score quickly'. Keep in mind that while a good personal credit score could help your business get a loan if it has a limited credit history, it will not override a low business credit score.