Call 0800 999 0900
How to improve your business credit rating
One of the primary roles for our customer services team is to credit check small and medium sized businesses for mobile tariffs. On several occasions, the credit check will result in a decline and they’ll hear the same story; “But they’re a millionaire, and have just bought a house in the south of France”, or “But they’ve just bought a fleet of new trucks, in cash”.
The first lesson learned very quickly about credit, is that neither a person’s nor business’s credit rating, is dependant on how much money they’ve got.
What is a credit rating based on?
There are many deciding factors that determine the overall credit score of a business. However there are occasions when even businesses with a good credit score won’t get a long-term or high value loan simply due to the business they’re in. There are a few high risk business classifications and financially risky business models which include Adult Entertainment, Debt Collection, Oil Drilling, and even Dry Cleaning, and any one of these may struggle to get a high value loan.
There are a few business credit agencies for the UK, some of the most well known are Experian, Equifax and Dun & Bradstreet, and essentially they work in the same way. They’ll all check to see how likely it is that a business will ‘default’ if they’re given a loan. That simply means that they’ll check the likelihood of the business repaying the loan in full. If a loan is not repaid and the business goes into debt, they will default.
Tips on how to improve your rating
Here are our top tips on how to improve your business credit rating.
- Check your current credit score. It would be silly to try and up your score, when you don’t know what it is to start with, even if you know it’s not great. You can get access to your credit report usually for a small fee, which will show you exactly where your problem areas are. The report may also include further tips on what you can do to improve the situation.
- Ensure your personal credit rating is also kept up to scratch. If you own a small business and are applying for credit, the lender may look into your personal credit history as well if they can’t find everything they need in the business. Make sure you keep up to date with outgoing payments to utilities (Gas, Electric), pay your credit card bill, and also make sure your council tax is paid.
- Don’t get any CCJ’s. You could find your business on the County Court Judgment register if you fail to keep up with debt repayments, and this can be extremely damaging for your business, as it will almost certainly hinder your chances on getting further loans or credit for at least six years.
- Pay your debts on time and in full. Paying off a business credit card in full is a good way of keeping on top of your credit, and improving it. The credit agencies will see that you have an outstanding balance, which isn’t necessarily a bad thing, but if you take too long to pay off your debt it will hurt your score. The best advice we can offer is to only use your credit card when you can afford to pay it all back at once. This will not only help your credit score, but will also save you money, as you won’t incur interest charges.
- Keep on top of late paying customers. It’s great to stay on top of payments you need to make, but you also need to make sure that you’re being paid on time by your customers as well. It’s a good idea to set out a ‘Payment Plan’ which includes an amount to be paid per month over X amount of months; this will ensure that everyone knows where they stand. If you find yourself still waiting for payments, it might be worth getting in touch with a solicitor who can send out official looking letters. You should also start charging interest if your customers go over the original payment period.
Keeping on top of your business credit file is continuously important and we recommend that you check your credit every few months.
