As a business owner, it is crucial to understand how credit scores work and how they can impact your business. Whether you are a small business, start-up or a major corporation, borrowing is essential for growth and expansion. However, every loan comes with a risk, and lenders, institutions and banks are always very cautious when deciding who to extend loans to. That’s where credit scores come into play.
What is a business credit score?
A business credit score is a rating of a company's creditworthiness, similar to an individual's credit score. It indicates a company's ability to pay its bills and debts on time, based on its credit history. The credit score is determined by analysing a company's financial records, including its credit accounts, payment history, and outstanding debts.
Importance of a business credit score
A good business credit score is essential for companies looking to secure financing or attract new clients. Lenders and investors use a company's credit score to assess the risk of lending or investing in the company. A higher credit score means lower risk, and therefore, better financing terms, such as lower interest rates and higher loan amounts.
In addition, many potential clients and business partners use credit scores to evaluate the credibility of a company. A high credit score can give a company a competitive advantage in winning new business and partnerships.
Business credit scores in the EU and UK
In the EU and UK, there are various credit reporting agencies that collect and analyse financial data to determine a company's credit score. These agencies include Experian, Equifax, and Dun & Bradstreet, among others.
Credit scores in the EU and UK typically range from 0 to 100, with a higher score indicating lower risk and better creditworthiness. Credit reporting agencies use a variety of factors to determine a company's credit score, including payment history, outstanding debts, credit utilization, and length of credit history.
Factors that affect business credit scores in the EU and UK
Payment History: Payment history is the most critical factor that affects a company's credit score. Late payments or missed payments can significantly lower a company's credit score, making it harder to secure financing or attract new business.
Outstanding Debts: The amount of outstanding debt a company has is another important factor. High levels of debt can make a company appear risky to lenders and investors, lowering its credit score.
Credit Utilisation: Credit utilisation is the percentage of available credit a company is using. A high credit utilisation ratio can negatively affect a company's credit score, as it suggests that the company may be relying too heavily on credit.
Length of Credit History: A longer credit history can improve a company's credit score, as it provides more data for credit reporting agencies to assess the company's creditworthiness.
Public Records: If there are any public records like past bankruptcies, collections notices, liens, and other indications of difficulty making payments, it will also negatively affect the credit score.
To sum it up
A good business credit score is essential for companies looking to secure financing, attract new business, and build credibility in the market. In the EU and UK, credit reporting agencies use various factors to determine a company's credit score, including payment history, outstanding debts, credit utilization, and length of credit history. By managing these factors effectively, companies can improve their credit score and enjoy better financing terms and more opportunities for growth.
As a business owner, it's important to keep track of your credit score and ensure that you maintain a good score by paying bills on time, reducing outstanding debts, and keeping credit utilisation low. In doing so, you can improve your chances of securing financing, attracting new clients and business partners, and growing your business.
With your wamo business account you lower the possibilities of damaging your credit score by using our Visa debit cards for business. By issuing your team debit cards - whether virtual or physical - you’ll never have to worry about going over budget. And wamo’s Pay Later feature which gives you 3 months to repay on purchases made - won’t impact your credit score.
Want to know more? Speak to a team member by using the chat box here on the website.