According to a survey, 1/5th of small business owners don’t have a sufficient understanding of business credit scores. That is understandable because, as a business owner, you deal with many things daily. However, knowing your business credit score is essential if you want to grow your business.
If you are struggling to know everything about credit scores, you are in the right place. Here is your complete guide.
Business Credit Score: The Basics
A credit score is a rating that credit agencies generate. They take into account many factors when giving a business a credit score. These include factors such as:
- Outstanding debts
- If you made your payments on time or not
- If your company is registered to the Companies House or not
- And much more
Depending on the agency, these factors will slightly differ. The rating helps banks, suppliers, and creditors to understand whether they should offer you credit and what amount. A good credit score helps you in borrowing while keeping interest rates low.
A Good Business Credit Score: What Is It?
The credit score of any business ranges from zero to a hundred. The higher the credit score, the better it is. That is because it shows that you are in a favourable financial position.
However, the closer you are to zero, the worse your credit score seems. It is an indicator of the risk the lender will be taking when giving you credit. Ideally, your credit score should be above sixty-five for a lender to think about giving you credit.
Lenders will also take into account other factors when deciding to give you credit. These are essential to their decision as it helps them understand whether you are low risk or high-risk.
Factors That Influence Business Credit Scores
If you want a good business credit score, you need to understand the factors influencing it. That is because the credit score is a glimpse into the financial health of your business. One of the most critical factors is past payment performance.
If you have paid your past payments on time, it will be reflected in your credit score. Lenders will know that your business has an excellent cash flow, and you can easily make payments on time. On the other hand, receiving a CCJ (County Court Judgment) is a negative reflection and drastically affects your business credit score.
That was your complete guide to a good business credit score. Keep in mind that it takes time to build a good credit score, and if you want to borrow in the future, you will need to maintain this score. If you don’t, lenders will be reluctant to give you money.
As a business, the first thing you should do is be registered with the Companies House. Seed Formations deals with all UK company formations. We can help you start your company so you can maintain its financial and overall health. For more information on our services, feel free to contact us.