Want to know how to build your business credit score effectively? Boost your reputation and secure more favourable solutions for your business by monitoring your company's financial health and taking proactive steps to improve your score.

In this article we discuss the importance of building business credit, key influencing factors, what to avoid and actionable steps to boost your credit score. 

What is a business credit score?

A business credit score is a numerical value given to companies by a credit reference agency (CRA), which measures your financial reputation and creditworthiness. The score helps lenders judge business suitability for their credit offerings. 

Whilst determining your credit score, these agencies look at various criteria, such as what credit you’ve held (and for how long), the types of credit used, payment history and total amount of debt.

CRAs review your company’s credit activity, financial profile and transactional data to evaluate debt management and identify any red flags that indicate financial risks. 

What is the difference between a personal and business credit score?

A personal credit score is based on personal finance history, measuring your ability to manage credit and repay debt. Meanwhile, a business credit score focuses on your company’s financial health and credit history.

Lenders may look at both personal and business credit scores when evaluating finance applications – mainly for start-ups and new businesses without long track records.

What affects your business credit score?

How you use existing credit solutions and how quickly you repay borrowed funds affects your business credit score. Demonstrating that you can manage your finances effectively over the long term will help to improve your credit score, while bad habits can negatively impact your score and risk rating.

Let’s explore how a business credit score is determined and the main factors influencing your score:

Key factors influencing business credit scores

• Existing credit use/types: responsible use of credit cards and other lines of credit will serve you well but overreliance on one source of credit or overusing overdrafts can suggest trouble managing cash flow.
• Payment history: late payments negatively impact credit scores, so ensure prompt bill payment and timely credit repayments.
• Length of credit: managing credit repayment over a long period shows CRAs and lenders stability, responsible accounting processes and healthy cash flow. 
• Amount of debt: high debt levels compared to your company’s revenue can harm your credit score and present risks for lenders.
• Credit utilisation ratio: this is the percentage of available credit being used. If your ratio is too high, it can lower your credit score. Try to keep your credit utilisation ratio below 30%. 
• Business finance applications: too many credit applications can negatively impact your score, as some include hard credit inquiries (which leave a footprint on your credit profile) and can indicate financial problems.
• Business type/industry risks: CRAs consider market volatility, regulatory challenges and average failure rates, with greater scrutiny over sectors like hospitality, construction and retail, plus start-ups of all kinds. 
• CCJs: judgements against your business (or personal finances) can significantly damage your credit rating. CRAs look at public records for red flags such as bankruptcies and CCJs, including defaults on loan payments, rental arrears and tax liabilities.

How to build and boost your business credit score

Now you know the main influencing factors, here are 6 handy tips to build your business credit score:

1. Register your business

Establishing your company as a legal entity (e.g., LLC, Ltd, etc) helps to increase company credibility, distinguish business and personal finances and simplify finance applications. Also, if you’re not on the electoral roll, register to vote too, as getting on the electoral roll is a proven quick win to boost your credit score.

2. Open a business bank account

Creating a business bank account will help build your company’s financial profile and keep your personal and business finances separate. Banks provide a range of benefits and incentives and using the account also lets you show you can manage money effectively.

3. Use credit responsibly

Responsible use of credit means not taking on too much debt, spending in line with cash flow and revenue forecasting, and using suitable forms of credit. Loan defaults increased by 65% between 2022 and 2023, according to Commercial Credit Data Sharing (CCDS) initiative data. 

Regular use of business credit cards and other suitable credit solutions with timely repayments will develop a consistent credit history that plays well with CRAs and lenders. Try to maintain low credit balances, spread costs across different sources of credit and keep your utilisation ratio low.

4. Pay your bills and financial obligations on time

Delayed payments cause cash flow issues amid the backdrop of increasing business insolvencies. According to a 2024 Allianz Trade Report, businesses have to wait an average of 59 days to be paid for goods and services. 

So, prompt bill payments and timely credit repayments are crucial, as late payments harm your company’s reputation and negatively impact credit scores (staying on your record for up to 6 or 7 years).

5. Regularly monitor your credit report

Regularly monitoring your credit report helps you spot and report issues, such as duplicate transactions, errors and fraudulent activity. Some CRAs offer free business credit reports [link to new blog], with paid options ongoing, others charge a small fee for one-off reports. Successful disputes mean your report gets adjusted, increasing your business credit score.

6. Avoid too many hard credit inquiries 

Hard credit inquiries can be inevitable when applying for credit cards and business loans but you should avoid racking up too many hard inquiries in a short period. It signals financial instability to lenders and impacts your score. Also, hard credit checks remain on your financial profile for up to two years.

7. Establish trade credit partnerships

You can establish trade credit agreements to spread your supplier payments. Popular in industries like construction and retail, these agreements can strengthen relationships, boost working capital and ease pressure on cash flow. However, this relies on making timely payments.

How is a business credit score calculated?

The main three CRAs for UK businesses are Experian, Equifax and TransUnion, but companies can use other providers such as Creditsafe and Dun & Bradstreet. 

These agencies use numerous factors to calculate a business credit score, such as industry risk, credit usage, payment history, level of debt and company age. The score reflects your perceived financial stability, creditworthiness and risk level.

What is a good business credit score according to the major CRAs?

The major CRAs have their own credit scoring systems and scores are accompanied by risk ratings to help lenders with approval decisions.

Here is an overview of the business credit score ranges for Experian, Equifax and Transunion and what constitutes a good score:

• Experian scores businesses from 1 to 100 – 80 or higher is regarded as low risk
• Equifax works to a scale between 101 and 992 – 670 and over is low risk
• TransUnion rates businesses between 300 and 850 – somewhere between 720-780 is deemed a good business credit score

How do UK and international credit scoring systems differ?

Business credit scoring systems are fairly similar globally. Most international CRAs use the same factors to judge a company’s financial health and creditworthiness as those in the UK. Dun & Bradstreet is a popular international CRA, that works to a 1-100 scoring system and largely focuses on global trade data, financial risks and chances of credit payment failure.

Why is your business credit score important?

Your business credit score is important for many reasons, including maintaining a good financial reputation, demonstrating good money management and improving your risk profile. Building your credit score opens more doors for your business.

The main benefits of establishing a healthy business credit score

• Strengthening your company’s credibility
• Attracting more credit providers and broadening your scope for funding
• Increasing your chances of being approved
• Helping you secure more favourable terms and better interest rates, lowing your borrowing costs
• Improving supplier and lender relationships
• Bolstering business stability and empowering growth

Common mistakes to avoid when building business credit

Taking on debt and managing credit comes with risks. Here are some of the common business credit mistakes and pitfalls to avoid:

• Late payments: failing to pay bills and monthly credit repayments can damage lender/supplier relationships and reduce your business credit score.
• Too many credit applications: excess applications can harm your credit rating (due to hard inquiries) and send the wrong signals to CRAs and lenders.
• Neglecting your credit report: if you don’t regularly monitor your report for inconsistencies, you may miss costly errors or fraudulent activity.
• Mixing personal and business finances: blurring the lines can muddle reporting. Keep them separate for clarity and tax purposes.
• Relying heavily on certain credit sources: a diverse credit profile allows you to spread costs, reduce borrowing costs and demonstrate responsible credit use.

How can you recover from a poor business credit score?

If you have a poor business credit score, it can make life difficult, but you can get your rating back on track. Here are some positive actions to rebuild your credit score:

• Settling outstanding debts and paying off credit
• Speaking with lenders to adjust credit limits or negotiate more management repayment terms
• Exploring lenders who offer finance solutions to companies with weaker credit
• Identify and dispute errors you find when monitoring your credit report

Funding your business with iwoca

If you’re a small business looking to build business credit, a short-term business loan can be a great option. iwoca is a leading UK business loan provider that empowers SME growth. Our Flexi-Loans offer fast access to capital and enable businesses to purchase key assets, plug cash flow gaps and expand operations.

Responsible use of our loans will let you build your business credit score and enjoy better future terms. We use a broad approach to finance approvals, taking into account business plans and revenue potential.

You can apply for a loan in minutes and get approved within 24 hours, with funds often transferred on the same day. Plus, we don’t charge for early repayments and you only pay interest on the funds you use.

Sources:

• How to Build Business Credit [iwoca’s Finance Explained Series]
• 5 SME lending trends shaping 2024 [Dun & Bradstreet]
• Nine Ways to Improve Your Business Credit Score [British Business Bank]
• Late Payments and Your Credit Score [Experian]
• Late Payment Trends – and the Action You Can Take to Offset Them