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101 guide to credit scores for corporate leaders

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Praveen Sudha

February 9, 2021
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Everyone is aware of the personal credit score, but not all of us would be aware of the business credit score. During these critical times, credit scores have become even important for corporate leaders to maintain trade suppliers and for tendering for new business.  

For businesses that have a low credit score, it becomes difficult to get access to affordable financing. Moreover, applicants that have a low credit score are usually startled when they are turned down and receive unfavorable terms. So, prior to submitting loan applications, everyone must be aware of the importance of having and maintaining a good business credit score. 

What are business credit scores? 

Business credit scores basically specify if a corporation is a good applicant for receiving a loan or is good for becoming a business customer. Credit scoring companies calculate business credit scores, which is also known as commercial credit scores depending on the company’s credit obligations and repayment histories with suppliers and lenders, number of years the company has operated, legal filings like judgments, bankruptcies, tax liens, business size and type, and repayment performance as that of similar firms. 

Unders anding the importance of credit score  

Credit checking your business is a vital task that must be carried out on a regular basis during the routine cash flow and credit control practices. It must be a regular practice for performing credit checks on your business credits. In case you perform credit checks on your own clients, there is a probability that they will also be credit and a bad credit ranking will not reflect well on your business credibility. 

Corporate leaders quite often plan for expansion and growth with time and for this, they need the company to secure outside funding from bank loans or other financial sources. And while applying for financing or business credit cards, checking the business credit score is the basic step to proceed further. The credit score directly impacts the decision made by the bank to approve an application. So, business leaders need to make sure that they have a good score prior to approaching any financial institution for a business loan. 

How do business credit scores work? 

The business credit score depends on the number created by the Credit Reference Agency (CRA). The score solely depends on your financial history and the CRA further checks your track records of the payments of previous loans and borrowings and how often you delay making the payments. Having a recorded history with no late payments is always a plus point that results in a favourable credit rating. 

Tips for improving your business credit score 

No business can improve their business credit score overnight; rather you need to have patience and be aware of effective tips that can eventually help you improve your business credit score. For this, you need to emphasize few things: robust information, sound financial management, and regular monitoring. 

So, it takes a matter of time, knowledge, and patience that can help corporations improve their credit score and make it easy for you in the long run when you seek outside funding. Underneath, I am sharing the most effective tips that will help you build a credible business credit score. 

  • Wherever possible, you must pay creditors promptly or negotiate the extended terms. It has a direct impact on your credit scoring, so in case you delay payment, make sure you do it by agreement. 
  • You must stay aware of your score- sign up for instant alerts so that you are notified immediately whenever your company’s credit record changes. With this, you can address problems as soon as they happen, rather than keep on hanging and getting into major troubles later. 
  • You need to check your credit rating score every month to stay informed about any surprise changes that might hamper your status. 
  • Always keep your information updated and keep your suppliers, clients, CRAs, and Companies House about the changes in your business location or status. 
  • You must regularly monitor your supplier’s and client’s credit positions to assure your credit record isn’t harmed by their actions. 
  • The agreed payment terms are a type of credit where failing to make timely payments will hamper your credit rating right away. So, try making the payments on time. 
  • You must collaborate with your business partners and suppliers. For improving your score, tell them to share data on your payment records with CRAs. 
  • As late filing results in various financial problems, you must file the company accounts without any delays. 
  • Multiple applications in a short duration of time result in credit searches carried out on your business that get recorded on your credit record and make an image that your business is struggling to secure funding. So, you need to limit the number of applications at a particular time. 

Bonus Tip

Corporations need to be aware of their personal finances and considering all the above tips will definitely help corporate leaders to improve their credit scores, but not overnight. You need to regularly all the tips in your mind and stay informed about every activity that directly or indirectly impacts your credit scoring. This helps in laying a strong foundation for your credit scores and with consistent attention and patience, you will definitely experience better credit scores. 

Want to get expert assistance and learn more about business credit scores? Get in touch with TERA experts; we are just a call away! 

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