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Climbing the ratings

Credit scores are widely used by lenders to assess the risk of extending finance to a business. Keeping your rating in the best possible shape will make it easier to take advantage of commercial opportunities and give you access to more competitive lending terms.

The most effective way to build and maintain a good credit profile is to settle bills on the agreed payment terms. Not every business owner realises that credit reference agencies gather data on companies as well as individuals.

It is also helpful to take a strategic approach to credit applications. Making multiple applications that are unlikely to succeed is not only time-consuming – it can also create the impression that your finances are in bad shape.

Don’t be shy

Another reason why a good credit score is important is that suppliers and other potential partners may use it to decide whether to do business with you. It is also advisable to check the credit rating of potential customers as any cash flow issues they face can have a knock-on effect on your ability to pay invoices on time.

The more information credit agencies have about you the better, which includes making sure the information they have is up to date and accurate.

It is also worth building up a track record by paying off your business credit card balance in full every month, for example. This is especially useful if you are a start-up or early stage enterprise with limited trading history.

Watch for fraud

Research suggests that most small businesses never check their credit score and that those who do don’t do it often enough. It is also useful to understand the factors that are monitored to create that score, such as debt judgements.

Checking your credit score on a regular basis is not just about assessing your chances of getting access to finance though – it is also an important fraud prevention measure.

Inevitably, fraud increased after lockdown as people were working from home and the usual methods of checking payments became more difficult to use. An unexpected change in your credit score can be an indication of fraudulent activity and give you a chance to minimise the damage.

Use the data

Businesses that use a cloud-based accounting solution such as Big Red Cloud are better placed to spot any discrepancies between the financial health of the business and its credit score, allowing them to ask the scoring company whether they are being unfairly penalised because a payment was withheld for a legitimate reason, such as a disputed invoice.

These accounting solutions can also be used to automate payments, ensuring that bills are not paid late or left unpaid due to human error. This is particularly important when making payments to utility companies, who are more likely to report late payments.

There are many reasons why your credit score might not be very high. Just remember that suppliers won’t expect you to have a perfect rating.