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Understanding your Small Business’ Credit Score

Published 5 Apr, 2019 

Think of your small business’s credit score as much the same as your personal one. It’s a score that takes into account elements such as your small business’s credit history to determine the risk appetite level (aka, how risky it is for a lender to lend you the loan, and the potential of default or non-repayment) when seeking a new loan.

The higher the number, the less risk to the lender.

But what exactly goes into calculating a business credit score, and what does mean for your small business?

You’re in luck. Because we’re about to break down the ins and outs of small business credit scores, how they’re used, and how you can make them work in favour of your small business.

Calculating credit scores

There are a number of factors that come into consideration when determining a business credit score, with each major institution differing ever so slightly in their approach.

The typical elements assessed include total lines of credit, type of credit, used credit vs available credit, length of your credit history, number of loan enquiries and your previous repayment behaviour. A combination of your business’s previous performance in these areas will determine the likelihood of being extended additional lines of credit in the future.

Who looks at my small business’ credit score?

Every time your small business applies for a new line of credit (aka, a business loan), the lending party will be obliged to review your business credit score to assess their level of “risk”.

Whether you’re after a small business loan or a credit card, a mortgage or a vehicle lease, your credit score will be checked to verify your identity, financial history, to check whether extending your business further credit is prudent for the lending party.

How do I turn around a bad credit score?

If your business has made some past mistakes when it comes to loans, it’s not the end of the road. While positive data remains on your credit history for up to 10 years, negative data usually only lasts for 7 years. In the meantime, the best way to improve your score is to simply: get your business out of debt. So ensure you make consistent repayments on outstanding amounts, only spend what you can afford, and make sure you’re paying off more than just the minimum amount monthly.

Once you’ve solved the financial woes of years gone by – and it might sound counterintuitive, but – one of the best ways to improve your business credit score is in fact to take out more credit. If you can get a loan that you can safely manage, showing a history of on time payments and low outstanding balances is excellent for improving your score.

Get Your Free Report

Uderstanding the health of your business will make it easier for you to scale and grow and our free Business Credit Report and Business Analysis will tell you everything you need to know. Get your free credit report by clicking below.

Don’t think it’s right that a business’s financial future hangs in the balance of this one number? Neither do we.

Unlike the major banks, we make a point of getting to know our customers, understanding their needs, and giving approvals based on current standing and future possibilities, not past mistakes. If that sounds like the kind of loan you want for your small business, apply online today!

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