How startups can improve their credit score
We all know the importance of our credit score by now - it forms a picture of how creditworthy you are, and basically allows lenders to give you a big yes or a less enjoyable no. Your personal credit score is one thing, but your small business has a credit rating too, and it deserves just as much close attention.
What’s your startup’s credit score based on?
- Business bank accounts.
- Credit cards and loans.
- Mobile and broadband accounts.
- Companies House records.
If you pay your credit off in good time, and don’t make too many applications, your startup’s credit score should be healthy and you’ll be seen as low risk. That means lower interest rates and more choice when it comes to finance.
If you’ve been late a few times, and it’s reported to the credit reference agencies, this can start to count against you. If you have any County Court Judgements (CCJs) and your credit limit is maxed out, your chances of getting a good credit card or competitive loan are almost zero.
Find your current score and detailed report
The first step to being in control is knowing EXACTLY what you need to improve on, do less of, or do more of. Dig through everything - your associations, accounts, lines of credit, and any positive or negative comments.
Unlike your personal credit report, there are various credit reference agencies for businesses and they all hold different information. Contact a few and request your report so you know exactly what the lenders will see - costs for this might vary depending on the service.
You can get a quick snapshot of your Ltd company using Solna’s free insight tools, including your credit rating, credit limits and invoice information. Your customers’ data is also accessible, so you can check them out before you start working with them.
If your score is good already - keep doing what you’re doing
A healthy score needs to stay healthy. A high score is mainly maintained by paying bills on time, and keeping on top of your credit card debt and loan payments. To keep it looking good, think before you take out a new line of credit and make sure it’s a smart choice. Are repayments affordable? Will interest rates go up over time?
If your startup is relatively young and the credit reference agencies don’t have much information about you, your credit applications might be rejected based on this alone. Getting a business credit card, and making all the repayments on time, will prove you’re a reliable borrower.
If your score is low, or not where you want it to be
Maxing out all your sources of credit tells lenders you’re struggling, or close to struggling. It also lets them know you’re not particularly good at paying things off. However, credit card companies are far too quick to let us know when we can extend our credit limit and borrow more.
If your score needs improvement, avoid the temptation and draw a line under your credit. Pay all your bills on time and pay more than the minimum. Once you’ve paid a good chunk of it off, you can think about borrowing more if you need to.
Simple ways to improve your score:
- Always file with Companies House on time. (If this is a struggle, your accountant can do it for you.)
- Close old and dormant bank accounts.
- Report anything on your account that’s incorrect.
- If you haven’t already, set up Direct Debits to pay your bills automatically. Don’t be caught out by due dates and late fees again.
- If you can afford to increase your credit card repayments, do it.
Your startup’s creditworthiness is a lot like its trustworthiness and its testimonials - it’s a marker of how good you are to work with. You want those opinions to be positive, whether they’re coming from a customer, a supplier, or your bank.
Our Complete Guide to Finance and Accounting for Startups and Small Businesses shows you how to get organised, how to choose the right software, and how to manage healthy cash flow. Take a look.
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