Businesses often take out loans from commercial banks or credit unions to fund their operations. However, a business’ ability to borrow and how much they can borrow is largely dependent on credit scores. As a result, credit scores are an integral part of securing funds, and knowing your credit score can help you to negotiate a better deal with your bank or find an alternative lender.
What is a credit score?
A credit rating as a number designated to an individual or company after an analysis of their credit and financial statements. This score helps credit providers, like banks and credit unions, determine the business and financial risk of an entity. In turn, the rating then informs a bank’s willingness to lend, the maximum loan amount and potentially even the interest rate offered to a business.
A credit score is calculated by analysing factors such as an organisation’s current business conditions, cash flows, earnings, profit margins, tax burden, debt and the size of the credit requested. A more recent file may possess a different level of risk compared to an older file.
Implications of your credit score
Your credit score will be a number between 0 and 1200, or 0 and 1000. This is dependent on the credit reporting agency you use to obtain your score. The higher the number, the more likely your loan will be approved as it reflects your ability to pay off debts within the given time frame. The number is rated on a five-point scale (excellent, very good, good, average and below average), and this position will inform lenders of your business position and if there are any risks associated with lending to your organisation.
The 5 point scale
- Excellent — you are highly unlikely to have a damaging event in the next 12 months that will negatively affect your credit score
- Very good — you are unlikely to have a damaging event in the next 12 months that will negatively affect your credit score
- Good — in the next year, you are less likely to have a damaging event that will affect your credit score
- Average — you are likely to have a damaging event in the next year that will affect your credit score
- Below average — you are more likely to have a damaging event in the next year that will affect your credit score
However, don’t stress if your credit score is low. Credit scores aren’t stored as part of your credit history. Additionally, due to the dynamic nature of your credit score, it is likely to adjust as your financial circumstances change.
How to get a credit score
You can get a free credit score from various online services. The results may vary depending on which credit reporting agency is used. These websites offer a free credit rating:
- Creditsavvy (Experian score)
- Credit Simple (Illion score)
- Finder (Experian score)
- Getcreditscore (Equifax score)
- WisrCredit (Equifax and Experian score)
To get a consistent and reliable measure of your credit score, it may be useful to check with more than one credit score provider
Helpful Ways to Improve Your Credit Score
- Lowering credit card limits
- Limiting your applications for credit
- Repaying loans, mortgages, and bills on time
- Paying your credit card off in full each month
A credit score is an incredibly important aspect of your business operations. If you maintain a good credit score, it will be likely that you can receive loans that will help enhance your business productivity.
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