More and more businesses are applying for finance as a result of COVID-19 having an impact on their regular trading.
Therefore, it’s becoming increasingly important for businesses to check and improve their credit score to ensure they can borrow better quality credit.
We have answered some key questions that are currently being asked about business credit score during COVID-19 and looked at a handy product that can be used to check your credit history.
Finally, we have assembled a guide which includes a list of several practical ways to help startups and SMEs improve and maintain their business credit score.
As a result of the financial implications of COVID-19, many SMEs are resorting to taking out business loans to continue trading. Statistics from the HM Treasury show that between the 10th May and 9th August, just under 1.4 million applications had been made for the Coronavirus Business Interruption Loan Scheme (CBILS), with only over 704,000 (50%) of those facilities being approved.
As more businesses are looking at external sources of finance to navigate through the coronavirus crisis, businesses need to make sure that they have a healthy credit score. Having a good credit score can show lenders that your business is creditworthy, which can lead to reduced interest rates, a higher borrowing allowance and more flexibility in repayment.
In fact, between June and July, SME Loans statistics showed that there was a 17% increase in businesses interested in using a credit score tool and a 13% increase in businesses accessing a daily score.
However, with growing uncertainty about what the future holds, it can be difficult for businesses to focus on their credit score. Here at SME Loans, we've assembled a quick guide on how to improve your business credit score. We've also included helpful credit score apps to track your business credit score and answered some of the most asked questions regarding credit scores and COVID-19.
- COVID-19 and your business credit score
- How to check your business credit score
- How can I improve my business credit score?
- Final Words and FAQS
COVID-19 and your business credit score
Why is it important to check your credit score during COVID?
It's essential to check your credit score during COVID so that you know where your business stands should you need to apply for a loan if your business has been affected by COVID. Additionally, checking your credit score is vital to identify any fraudulent activities.
Sadly, fraudulent activity has increased during the lockdown in the UK. April saw a 33% increase in the rate of fraud compared to the average of previous months. By checking your credit score regularly, you can quickly identify if any fraudulent activity has taken place, which will allow you to act quickly before too much damage is done.
Knowing that your business' credit score is healthy is incredibly important in terms of applying for external finance or working with other companies. If you know that your business has a good credit score, then you can feel relatively safe that the external funding you apply for will have better rates of interest.
Many business owners are likely not to be keen on borrowing money during a recession, despite it possibly being a necessity. Therefore, knowing that the loan is reasonable on account of your credit score allows some level of peace of mind.
In regards to business, Experian suggests that your business credit score can influence whether a company or customer chooses to work with you. Businesses are keen to be trading following a period of lockdown, so checking your credit score ensures that there are no bumps along the way.
Ultimately, checking your credit rating will keep your business up to date and can help avoid more unexpected challenges during an already uncertain period.
How do I check my credit score for my business?
You can check your credit score by creating an account online with a credit reporting agency. Be aware that you may have to pay a monthly subscription to access your credit score details. You can check your business credit report tools such as Credit Passport, Experian and Equifax.
Credit Passport is a very useful tool for checking your business' credit score and is the only credit score based on your real-time based banking data. They've recently introduced tools to help your business cope with COVID19. It's completely free to sign up,plus applying doesn't affect your credit score. Importantly, Credit Passport is authorised and regulated by the FCA.
- Free credit score check - Signing up and checking your business score with Credit Passport is completely free.
- Instant Credit Score - You're able to see your business credit score instantly and are updated on your score weekly.
- Liquidity shortfall calculator - Calculates how much funding or saving your business may need in the next six months.
- Credit Passport Pre-Crisis Report - This generates a credit report based on your credit before the crisis to help prove eligibility.
- Funding Portal - Credit Passport can connect you directly with 134 lenders, including those who are part of the CBILS scheme.
Can I check my business credit score for free?
Yes, you can check your business credit score for free with Credit Passport's basic plan, which includes tools to help with COVID-19. Many other credit reporting agencies will require you to pay a monthly subscription to gain an insight into your credit information.
How to check your business credit score
Checking your business’ credit score online is an incredibly simple process. In this quick tutorial we show you how to check your business credit score with Credit Passport. Their credit checker is really straightforward and completely free, which makes it really easy to use.
Step One - Sign up.
Credit Passport’s sign up process is very quick and easy. To create an account you only need to provide:
- Company Name or Number: A dropdown menu will allow you to select your business.
- Personal Details: You will need to provide some basic information about yourself.
Once you have entered the required details, you are then able to create an account.
Step Two - Connect your business bank account.
Once you have created your account, you will need to connect your main business bank account to Credit Passport. This is so that Credit Passport can use open-banking to analyse your business bank account to provide an accurate credit score.
Open banking is a new and secure way to access financial information about your business, with most banks providing open banking connections. Credit Passport only needs a read-only view of your primary business bank account data.
Credit Passport takes privacy incredibly seriously and goes to great lengths to ensure your data is kept secure and safe. They are also regulated by the Financial Conduct Authority.
Step Three - Find out your credit score.
Once your main business bank is successfully connected with Credit Passport, you’ll be able to find out your credit score within as little as a minute. Yes, it really is that fast. Once you find out your credit score you’ll be able to get a better insight into how creditors perceive the financial health of your business.
How to improve your business credit score during COVID
There are several ways in which you can improve your business’ credit score or credit history. It may take some time before you start seeing results, so it is always wise to constantly be considering ways to help improve your credit rating. Generally, it is a combination of in-depth information, sound financial management, and regular monitoring which leads to a healthier credit score.
We have put together a list of tips to help startup businesses, small businesses and medium businesses to improve their credit score.
How to improve your credit score
1. Check your credit score.
The first step to improving your credit score is to check your credit score using a credit checking tool such as Credit Passport, Experian or Equifax. They will provide a soft check on your business' credit score and give you score ranges which will reflect whether you have good or bad credit.
Once you understand your company credit score, you will know if you will need to improve and make better credit decisions in the future. During COVID, it is crucial to check your credit score if you're looking to source credit from a lender or to work with other businesses.
2. Regularly check your business credit score.
Checking your business' credit score throughout the year is important to understand how much you need to improve your credit score. Checking your credit score regularly will also allow you to see if your score begins to dip, which enables you to ring your CRA and ask why your credit score has gone down.
Although this may not necessarily improve your credit score, you can find out an answer and look to rectify a mistake. It also helps avoid any nasty surprises such as high-interest rates when it comes to applying for external sources of finance, such as business credit cards.
3. Pay your bills and invoices on time.
Paying bills on time is a straightforward and effective way to start improving your credit score; this also includes paying invoices promptly. As payment terms are considered a form of credit, failing to pay your bills or invoices on time will result in your credit rating being damaged.
During COVID, it may be difficult to pay suppliers or utility bills on time due to lockdown reducing business and damaging cash flow. So, if possible, prioritise making your regular payments on time to avoid penalties.
4. Reduce the number of credit applications you apply for.
Do not apply for multiple lines of credit in a short space of time, as this can signal to CRAs that your business is struggling financially. It can harm your credit score as multiple credit searches will be undertaken on your business.
It can be better to ask a lender for a quote to get a better understanding of how much you can borrow. This way, it doesn't require a hard credit check on your business' credit score.
5. Check your personal finance
Checking your personal finances is mainly aimed at startups, where it is likely they will have a thin business credit history. Instead, CRAs may look at your personal credit score as an alternative to judge your creditworthiness.
So, as a business owner, ensure your personal finances are up to scratch and healthy to make it as simple as possible to qualify for business credit.
6. Establish Credit
Establishing credit is a significant factor, especially for startups and small businesses. Some businesses don't have an extensive credit history, which means that lenders do not know whether a business is creditworthy or not. As a result, a business may be rejected for credit despite being capable financially.
Businesses can establish credit by using business credit cards or business loans sensibly; this means not borrowing beyond what you can repay. It shows CRAs and lenders that you can successfully make timely repayments, which can help build your credit score as a result.
As a business owner, it is vital that you know what your business' credit score is during normal times and even more so during the coronavirus crisis. The crisis that we are currently living through has already made running a business more complicated and convoluted.
Although checking your credit score may not resolve that but by using a credit checker, such as Credit Passport, it will provide more clarity to how your business is perceived.
Understanding how your business is perceived means that you can get a better insight into how you conduct your business, which can hopefully help avoid more nasty surprises in the future.
Frequently Asked Questions
What is a business credit score?
A business credit score is much like a personal credit score, it is an indication of how financially healthy your business is. A healthy business credit score can help a business secure better quality funding. Business credit score can be influenced by a number of factors, such as paying bills and invoices on time.
How can you check your business credit score?
You can check your business credit score by using an online credit checker. If you want to check your business’ credit score for free, then you can use Credit Passport. Credit Passport doesn’t require a credit card and your business credit score isn’t affected when you apply. Importantly, it comes with a host of features specifically designed with COVID-19 in mind.
Do businesses or companies have credit scores too?
Yes, businesses do have credit scores. They are used to gauge how creditworthy a company is, which affects how much a company can borrow and the rate of interest they have to pay. Startup businesses may have their personal finances taken into account, on the basis that they have a thin credit file.
How do business credit scores work?
Business credit scores are usually based upon the financial history of your business. Which is used to determine the creditworthiness of a business and reliability that it will repay debt. Although not guaranteed, it is usually easier to receive credit and competitive interest rates with a good business credit score.
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