Do You Know Your Credit Score?
You might know your personal credit score, but chances are you’re in the dark about your business credit score. An alarming 93% of SME (small-to-medium enterprise) owners don’t know their credit score, despite it being an important indicator of financial health.
Your credit score is one of the key indicators used by banks and lenders in assessing the risk of lending to your business. This means that knowing your credit score can empower you to make informed financial decisions. Having good credit may create more opportunities through improved access to funding.
What is a business credit score?
It is a numerical indicator ranging from -200 to 1200. The higher the score, the better. A higher score shows your business is financially stable and low risk, which in turn may increase your options to access funding.
The score is calculated using the information listed on your business credit profile. This includes the number of times you’ve applied for loans and the promptness of bill payments. These data inputs are filtered against a complex algorithm developed by Equifax.
Your credit score is created at the same time your business is launched and will change based on a variety of factors, including payment history, debt, risk factors, and organisation size.
Is it the same as a personal credit score?
No, your business score includes commercial and business attributes, not the personal credit data used to calculate individual scores. Note that as part of applying for a business loan, the personal credit file of directors may be checked.
Comprehensive credit reporting (CCR) – also known as positive credit reporting - was recently introduced to personal credit scores, but does not currently apply to business credit scores. CCR gives lenders a detailed and more balanced picture of a borrower’s credit history because both positive and negative information is made available on credit files.
Where previously lenders were only able to access the negative parts of an individual’s credit history like overdue payments and defaults, now they can see the full picture, such as how frequently on-time payments are made.
Did you know?
According to a November 2018 ondeck survey:
- Only 53% of small business owners who knew their credit score had checked it within the last year
- Only 42% knew the actual purpose of a credit score
- 25% don’t understand what a credit score is
- 25% think a credit score is for purposes other than borrowing money, such as business valuation or paying tax
How does a credit score get damaged?
Applying for finance from numerous lenders within a short space of time is likely to impact your credit score. Regardless of whether your loan application was approved or rejected, this enquiry is recorded on your file.
Although there are no hard and fast rules for how many credit queries are too many, lenders may feel apprehensive about lending to a business that has a number of recent enquiries or a high frequency of enquiries. They cannot see whether you have been declined or approved for lending, or the reasons for either, so too many credit applications could indicate greater credit risk.
Other ways to damage your credit score include not paying bills on time, high debt levels and bankruptcy.
Do you know the credit health of the businesses you work with?
Not only should you be familiar with your business credit score, but also with the credit practices of the companies you work with.
You can do so through credit reports, which are compiled by credit bureaus like Equifax. We aggregate a wide range of data from multiple sources and deliver results in an easy-to-understand report, enabling you to make financial or trading decisions without taking unnecessary risks.
SwiftCheck credit reports allow businesses to see the in-depth payment history of customers and suppliers, including the average days beyond terms. These indicators can provide valuable insight into how a customer is paying its other debtors or that a critical supplier is struggling to pay its debts.
The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.