Three ingredients to a healthy credit score

There are three key ingredients to a healthy credit score: robust information, sound financial management and regular monitoring.

Information

  • Share it – The more data that is available about your company, the better. It means Credit Reference Agencies (CRAs) like Experian can validate this information and ensure your score accurately reflects your current situation.
  • Update it – Inform customers, suppliers, Companies House, directories and CRAs of changes to your company, e.g. change of location or ownership. If information about your company is out of date, it’ll make you seem unreliable and cast doubt over your dependability.
  • Collaborate – Encourage suppliers to provide feedback and share your data with CRAs, e.g. what terms you have, how promptly you pay invoices and so on. This will help ensure your company is being represented most accurately, fairly and favourably.
  • Watch your personal finances – Information on a company’s owner or owners will be used as an indication of commercial integrity and reliability if financial data for a company is scarce in its early days, which it normally is.
Creditworthy

Financial Management

  • Pay on time – Pay invoices as promptly as possible as payment terms are a form of credit. Once a product or service is delivered, payment is effectively due. Allowing customers to pay later equates to extending them a short-term loan. Late payment of invoices may show on your credit report damaging your credit rating.
  • File on time – Always submit your annual accounts and returns before or by the official deadline. Late filling may be interpreted as a sign of financial distress.
  • Avoid CCJs – If your company receives a County Court Judgement (CCJ), settle it within a month. In stable economic conditions, a one-off, promptly paid CCJ won’t necessarily lead to negative credit.
  • Limit credit searches – When applying for credit, lenders will mostly likely run a search on your company with a CRA. Every time a search is done, this leaves a footprint on your credit record which could negatively affect your score. Too many searches done within a short space of time could suggest to lenders that your company is having financial difficulties.

Monitoring

  • Check your credit rating – Purchase a credit report from your CRA. Check your score as part of your monthly administrative duties to avoid unexpected surprises. Use a specialist product that won’t leave an imprint on your credit record.
  • Make use of tools available – There are products that can help you monitor your credit worthiness, such as Experian Business Express’ My Business Profile. This monitors the factors that affect credit scores, in real time, at the click of a button. It allows you to see and refer to what lenders can see on your credit record when deciding whether to lend to you.
  • Be alert(ed) – My Business Profile provides alerts when your credit file is searched, or when there is a significant change or impact to your credit report. A change may be the result of an adverse credit event, such as a CCJ. Alerts can help you to rectify matters quickly before they escalate or affect your credit score. Changes can also be a sign of attempted fraud, so an early warning system of this sort can be crucial.
  • Check business partners – Check the position of your suppliers and customers, so you won’t be left in a sticky situation should one of them go bust or pay you late. Again there are products that enable SMEs to do this such as Experian Business Express company credit reports.

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Posted on by Cindy Yip

Estimated read time: 4 mins