In this blog, we will take a look at how a business credit score works, what is considered to be a good score, how to improve a bad one, and how you can find your business’s credit score.
A business credit score is a numerical grade based on an analysis of the credit files of a business. This grade represents the creditworthiness of a business, according to certain criteria.
In the UK there is no universal credit score, but credit reference agencies such as Equifax have their own scores which can be accessed by third parties who want to assess the credit risk of a business.
Banks generally have their own unique methods of assessing the business credit score of a company that wants to take out a loan or overdraft. A company with a particularly poor business credit score may not even be able to open a business bank account.
Every different credit referencing agency or system will have its own method of business credit scoring.
Let’s take Experian as an example. They have a range of business credit scores from 0 to 100, with 0 being the worst score and 100 being the best score. These scores are described in terms of risk, as follows:
1 = Imminently failing company
25-50 = Above average risk
51-80 = Below average risk
91-100 = Very low risk
It is important to note that other credit reference agencies and systems may have different ways of assessing and describing creditworthiness. However, there will normally be a numerical sliding scale; one end will be considered an excellent business credit score, and the other end will be high risk.
Credit reference agencies will normally provide a way for companies to view their business credit scores online. This will generally involve a monthly subscription fee, but there are usually free trials available.
Some of the agencies which offer access to business credit scores include:
The business credit score of a sole trader will generally form part of their personal credit report, compiled by Experian, Equifax, and TransUnion.
The Data Protection Act 2018 entitles individuals to access their financial standing in these credit reports for free. Although all three agencies offer monthly subscription products which allow an individual to access their credit report, they do not actually need to sign up to get a copy of the information about their financial standing.
Instead, they just need to request a free ‘statutory report’ from the relevant credit referencing agency. Alternatively, they can use ClearScore which is free. Therefore, sole traders should normally be able to access their business credit scores for free.
DUNS, which stands for the Data Universal Numbering System, is a global numbering system for businesses. It’s managed by Dun & Bradstreet (D&B), an American credit referencing agency.
The system assigns a unique numeric identifier, called a DUNS number, to each business that has been registered in their database. DUNS numbers link a company with their credit report, including their business credit score, held in the Dun & Bradstreet database.
Certain organisations will require a DUNS number before considering working with them or providing them with a line of credit.
Some of the ways in which a business credit score can be improved include: