How to build a healthy commercial credit score
Your commercial credit score could be one way in which lenders and other companies you do business with assess your financial stability and set payment terms for you. Your commercial credit report says a lot about your business, determining how you appear to other companies and could be a deciding factor in whether or not people choose to trade with you. If you’re looking to expand your business and want a loan, your score may affect how much a bank is willing to lend to you, or even if they’re willing to lend to you at all. So how can you build a healthy commercial credit score, for your business to be reflected in the best light possible?
Let’s first look at the basics of a company credit score
Commercial credit scores normally range from 0 to 100, with 0 representing a high risk and 100 representing low risk. It’s calculated differently according to different Credit Reference Agencies (CRAs), however most scores will take the following factors into account:
- Age of company
- Number of trade experiences
- Payment history
- Information available from public records such as bankruptcies or County Court Judgements (CCJ’s)
- The length of your credit history
Steps to building a healthy commercial credit score
1. Keep business information current with the main credit bureaus
For personal credit scores, there’s a standard set of guidelines to be followed to assess your finances but for business credit scores, different bureaus could be calculating it differently resulting in different credit scores. You don’t know which credit bureaux the potential business or bank you want to work with could be using, so it’s best to check your information is correct and up to date with the top three credit bureaus every six months. The more comprehensive your profile, the better. Don’t leave this until the last minute when your business does need finance but make sure you’re prepared for any circumstances your business may face.
2. Establish trade credit with suppliers
If you purchase products, ingredients or other materials from third party suppliers, these purchases could help you build your business credit. Many suppliers will extend credit for you so that you can pay for the goods or services after they’ve been delivered, whether this be a few days or a few weeks. You more than likely will have this sort of relationship, if you do, ask them to share your payments with their credit bureau so it can be put on record that your business pays on time.
3. Make your payments on time
Although each CRA will use different methods of calculating your commercial credit score, most or all of them will consider your history of paying creditors. To ensure you obtain the best score possible, make sure you pay your creditors on time. To help protect your business against the potential of cash flow issues and delays in payment that may affect your own commitments, check your customer’s payment performance. The more detailed your credit history, the more favourably and accurately you can be assessed so the sooner you can start to establish credit, the better.
4. Keep your public records clean
In addition to detailing your business’ history of paying bills on time, your commercial credit report will also include any public records filed in your business’s name. This includes any adverse information such as bankruptcies or CCJ’s; reflecting negatively in your credit score. Bankruptcies can stay on your file for almost ten years whilst adversaries such as CCJ’s can stay on your file for up to seven years.