Business Credit Score
Get your free business credit score to understand how much money you can borrow.
What is a credit score and how can I get one?
Do you use a credit card or other form of credit to pay for good's or services?
Credit is the life blood of fast moving consumer economy and the business workforce.
If a company is going to "give" you credit then they are going to want to know what your current and previous credit history is like.
This is where the credit score comes in.
A credit score is based on your historical borrowing and repayment history.
This also includes how often you have sought out additional credit.
When you seek credit a credit enquiry is run by the company that is going to issue the credit as a protective measure.
Lenders take this "credit score" or rating and use it alongside their own lending criteria to make a credit assessment. Internal credit teams review the data provided and look for trends in financial statements to determine your ability to repay issued credit.
How is your credit score calculated?
Credit scores are calculated by specific credit agencies.
These credit reporting agencies include Equifax, Experian and Illion.
Each agency will create a score after it has calculated the following data:
Debt - past and present debts including any delinquencies in debt repayments.
Loans- existing loans that exist against your credit profile
Credit Cards - active credit cards and their balance
Credit Limit - Current credit limits and repayments
Bank Accounts - Existing and closed bank accounts
Defaults - court issued default documents and any default judgements
This helps them discovery things such as past bankruptcy.
How** can I check my credit score?**
There are many free credit checking sites and apps that let you check your score without making a full credit enquiry.
They will require the full information
- Full Name
- Date of birth
- Address
- Drivers licence
Scores are fairly quick and can be given within 5-10 business days.
What do I do if I have a bad credit score?
Credit scores are flexible and not permanent. They are used to gain a better understanding of your current credit position.
By resolving unpaid debts and paying any new bills on time you can "fix" your credit score quickly.
How can it help me with apply for a business loan?
Having a good credit score will help you land the best possible terms on your loan application. This can result in better rates and a lower monthly repayment.
Understanding the Importance of a Business Credit Score
A business credit score is a crucial element in the financial health and operational capacity of any business. It not only influences how lenders view your business but also affects your ability to secure favourable terms on loans, leases, and even supplier contracts.
Why Your Business Credit Score Matters
A strong business credit score can open doors to better financing options, lower interest rates, and increased trust from potential partners and suppliers. Conversely, a poor score can limit these opportunities and increase the cost of borrowing.
Impact on Financing
Lenders use your business credit score to assess the risk of lending to your business. A higher score suggests a lower risk, which can lead to more favourable loan terms. For instance, a business with a high credit score might secure a loan with a lower interest rate, saving thousands of dollars over the loan's lifetime.
Supplier Relationships
Suppliers may also check your business credit score to determine payment terms. A good score can lead to more favourable terms, such as extended payment periods, which can significantly improve your cash flow.
Practical Steps to Improve Your Business Credit Score
Improving your business credit score is a strategic process that involves consistent financial management and proactive measures.
Regularly Review Your Credit Report
It's essential to regularly review your business credit report for accuracy. Mistakes can happen, and they can negatively impact your score. If you find any discrepancies, contact the credit reporting agency to have them corrected.
Pay Bills Promptly
Timely payment of bills is one of the simplest yet most effective ways to improve your credit score. This includes not only loans and credit cards but also utility bills and supplier invoices.
Manage Credit Utilisation
Keep your credit utilisation ratio low. This ratio is the amount of credit you are using compared to your total credit limit. Ideally, you should aim to use no more than 30% of your available credit.
Establish Trade Credit
Building relationships with suppliers who report to credit agencies can help improve your score. Ensure you maintain good relationships and pay these suppliers on time.
Case Scenario: How a Small Business Improved Its Credit Score
Consider the example of an Australian small business, "Eco Solutions Pty Ltd," which struggled with a low credit score due to a few missed payments and high credit utilisation. By implementing a structured financial management plan, Eco Solutions was able to:
- Negotiate with creditors to settle outstanding debts.
- Set up automatic payments to ensure bills were paid on time.
- Reduce credit utilisation by paying down existing credit card balances.
Within a year, Eco Solutions improved its credit score significantly, which enabled them to secure a business expansion loan at a competitive interest rate.
FAQ
What is a good business credit score in Australia?
In Australia, a good business credit score typically ranges from 700 to 850. However, different lenders may have varying criteria for what they consider a "good" score.
How often should I check my business credit score?
You should check your business credit score at least once a year. However, more frequent checks, such as quarterly, can help you stay on top of any changes or inaccuracies.
Can I separate my business and personal credit scores?
Yes, it is possible to separate your business and personal credit scores. This is often done by incorporating your business, which establishes it as a separate legal entity.
Sources
- Australian Securities and Investments Commission (ASIC)
- Australian Taxation Office (ATO)
- Reserve Bank of Australia (RBA)
- Equifax Australia
- Experian Australia
For more insights on improving your business credit score, visit our Business Finance Guide.