How to Run a Business Credit Report

Need your business credit report? Here's how to access it.

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Business finance can sometimes seem complex. While it’s true that there is often a lot of nuances, there are plenty of elements that are similar to personal finance. For example, when it comes to learning about your business’ financial health, a credit report can provide detailed insight into how lenders see you. Similarly, you can get information about potential clients and customers if you’re the one lending money. We take a look at how to run a business credit report, as well as full details of what they are and why you need one.

What is a business credit report?

A business credit report works in much the same way as a personal one does. It’s effectively a CV for your finances, showing lenders details about your business and borrowing history. Such reports cover a wide range of information, including:

  • Details of credit accounts you’ve held in the past
  • Details of company directors
  • Whether you’ve kept up with loan/finance repayments or not
  • Your current and past business addresses
  • Any financial connections, such as other accounts linked to your business
  • Risk factors affecting your credit score
  • Your banking, trade, and collection history
  • Any bankruptcies, liens, or judgements against you

As we’ll see, business credit reference agencies look at a variety of different factors to determine your credit score. This numerical representation of your financial health has many uses and can influence all kinds of factors.

Why is it important?

Surprisingly, a large number of businesses know little about their credit report. According to a 2017 Experian survey, only 13% of the SME directors in the survey correctly identified the main factors influencing their business credit rating.

However, it’s an important factor for many reasons. For business owners, there are two main functions these reports show:

  • How likely it is you’ll be able to secure business finance
  • How safe it is to do business with other companies

A business credit report shows how healthy an organisation’s finances are. So, you could use such a report to find out the top factors that are affecting your own score, as well as how to fix them. Similarly, you could run a report on a company you’re negotiating with to see whether or not they’re a viable option.  A credit rating says a lot about a company, and it’s easy to find out these details.

Why do I need one?

All businesses should keep an eye on their credit score. Just as with a personal credit report, there are many actions that will trigger companies to look into yours. For example, if you’re opening a business bank account, applying for a loan, or taking out a contract with regular repayments, it’s one of the factors that are looked at.

So, if you’re trying to build and expand the reach of your business through finance, you’ll need a good credit score. The higher it is, the more likely you are to get a competitive interest rate on the loan, credit card, or other finance option.

Conversely, if you have a poor credit score due to missed repayments or failed credit applications, you’ll find it hard to get the best rates. If this is the case, you need to know. Credit scores can be improved over time, but you need to understand the position you’re starting from.  

Of course, you could also be in a position where you’re looking to extend credit to another firm. In such cases, you’ll want to have a firm understanding of the risk involved. If you run a business credit report on that organisation, you’ll get a unique insight into their financial health. This can determine how likely they are to pay you back.

Data is collected from over 200 sources, and complex algorithms are used to calculate a final score.

How are credit scores calculated?

Business credit scores are calculated by Credit Reference Agencies (CRAs). As with personal scores, there are many different factors that CRAs look at when calculating your score. This generally tends to vary slightly between CRAs. However, according to some companies, this list can include over 150 parameters, as well as industry and economic factors.

Data is collected from over 200 sources, and complex algorithms are used to calculate a final score. It’s hard to say exactly what’s included in each, as reference agencies have their own methods. However, generally, factors include:

  • Your payment history. This includes things like how much you’ve borrowed in the past and how well you’ve repaid it. Regular repayment of credit is often a good indicator, while missed payments can count significantly against you.
  • Your total amount of debt. Companies operating with a large amount of debt often have lower scores, as their overall risk is higher. It’s often considered as a proportion of your turnover.
  • Time and length of credit. If you have a lot of long repayment terms next to your business, this can be concerning for lenders.
  • The type of finance you have. Those companies that have a lot of high-interest credit cards and short-term loans often have cashflow issues.
  • Recent finance applications. If you’ve been applying for a lot of loans and other forms of credit, it again suggests that cashflow might be an issue. Regular refusal of credit can have serious impacts on your score.

Where can I run a business credit report?

There are several Credit Reference Agencies that offer business credit reports, although three main names stick out. Each of these has a slightly different scale that they measure your business by. We’ve outlined the ones you need to know about below:

Equifax

There are two scales that Equifax use to assess your business credit score. The first is a standard ‘payment index’ which ranges from 0 to 100, with a higher score being better. This report tends to have less information and focuses on your credit history. It gives a snapshot of your current financial health.

Equifax also offers a credit risk score ranging from 101 to 992. This is a more detailed examination of how creditworthy your business is. It looks at factors including the size of your company, your total credit limit, the age of your current credit accounts, and your record of paying invoices.

For those looking to get a report that looks more at the viability of a business, there is also a business failure score ranging from 1,000 to 1,610. A high score indicates a business is unlikely to fail over the next year. If you’ve been maxing your credit limit and been late repaying, your score will indicate financial inviability.

Experian

Experian offers perhaps the most detailed view of a company’s finances. As well as matters of finance, their report also examines your legal history. So, if you’ve ever been made bankrupt or have had legal action against your business, this will show up on the Experian report.

As with other agencies, your creditworthiness is measured on a scale of 0 to 100. Again, a higher score indicates a better financial position. However, many smaller organisations will find that they’re a ‘medium-risk’ business at best. Only larger, more established companies reach the higher ranks. 

Dun & Bradstreet

The Dun & Bradstreet ‘Paydex’ score is split into two different scores. The first is the financial stress score, which ranges from 1,001 to 1,610. This score is a measure of how likely your business is to fail based on your current credit and how you’re using it.

The other score is the commercial credit score, which takes information based on your financial past and how timely you’ve been with payments. This score uses a scale of 101 to 670. Both of these scores combine to give you a score of 0 to 100. Anything from 0 to 49 is considered high risk, 50 to 79 is medium risk, and 80 to 100 is low risk.

How to grow your business credit score

If you’re looking to improve your financial standing, there are several ways you can boost your credit score. The first step is actually finding out what your current score is. From there, you can usually sign up to get regular alerts on how your score is looking. There are also other steps you can take:

  • Make sure all bills are paid on time. This is one of the most significant factors when it comes to working out our score.
  • Keep debt and credit low. You want to show lenders that you’re not constantly operating at a loss. Although some credit is useful, too much can be a worrying sign.
  • Register with a credit reference agency. Not only will this give you access to your business credit report, but it will also allow you to challenge any wrong information.
  • Keep an eye on your personal finances. For newer businesses, you might not have sufficient information to give a clear report. If this is the case, lenders may look at your personal finances.
  • Avoid County Court Judgements. CCJs are legal demands for money. Make sure to avoid them, but pay them immediately if you do receive one.

Final Thoughts

Clearly, business credit reports can be a valuable tool. Whether you’re a company owner looking to borrow money or a more established firm looking to do business with another, they can help you make informed decisions. Your financial health is an essential part of running a business, so understanding your credit score can help you grow your company.