Agencies use a number of sources to find information and establish a business’s credit ratings, but credit reports would be much more useful if they combined both business information and a person’s personal expenditure, according to a comprehensive study by Experian. It is likely that consumer data will be used more often in future.
At present most business credit ratings include payment data from company suppliers, financial reports, web mining, news and media, telephone and other print directories. If the business is a limited company, business registration details and financial accounts are also trawled. The credit agency builds up a picture of a company’s credit history and compiles a credit rating which suppliers, banks and other finance providers can use to gauge whether to extend credit or not.
It is important to understand how credit ratings are calculated because business credit ratings can be improved. For instance, whether you pay your bills on time is a vital part of the calculation of your credit rating. But credit ratings can be affected by other issues such as ratios from the company’s filed accounts, the length of time you have had a credit profile, the number of enquiries made on your credit profile, possible bankers’ information (if you have given permission for it to be made available), credit card details (if you use credit cards as a purchasing tool, and also information that may be available on company credit cards). Business credit scores range on a scale of 0 to 100, and 75 is considered an excellent rating. Some reports may have written recommendations as well as or instead of credit scoring.
How to improve your business credit rating
Always pay on time – this is a vital part of the calculation of your credit rating, and will help your credit profile enormously. It is not just sticking to agreed terms from suppliers, but also from banks and other finance providers.
Make sure all relevant trade experiences are represented. A lack of information on your profile can be just as harmful as a poor credit history. Try to form relationships with companies that will establish credit for your business and who may report positive information as asked, as part of a trade reference request.
Get listed and keep your registrations up to date. As mentioned above, credit agencies gather information from various sources to confirm a business is genuine, so ensure your business is listed in telephone directories and (if you are a limited company) that the company registration details are accurate and up to date and that accounts are filed on time.
Keep personal finances in order. Agencies can review the personal credit profile for key individuals, especially in smaller businesses which do not have a detailed business credit rating.
Despite your best intentions your credit ratings might plummet because of tardy customers. If you offer credit it brings with it the risk of late payment and bad debt. Obviously you need to credit check your customers in the same way they will credit check you. If personal consumer data is combined with business credit information more widely in the future credit reports will be far more accurate and of greater use to those who pay for them.
