Build your business credit score in five easy steps

A poor personal credit score can impact loan or credit card applications, as well as the interest rates you're offered. The same is true for your business credit score.

Building a strong credit score takes time and consistent effort in several areas. If you don’t take the right action, your business's credit score won’t improve, limiting your access to credit.

Happily, you can start building your business credit by following the five simple steps listed in this guide. But before that, let’s review what your credit score is and why it matters.

What is a business credit score?

A business credit score reflects your business's financial history which lenders use to make lending decisions. A poor score can make it harder to get credit approval. It may also result in higher interest rates, lower loan amounts or shorter repayment periods. 

A good score helps secure:

• Credit approval – applications are more likely to be accepted

• Attractive interest rates and terms – you typically get better rates and can borrow more for longer

• Better supplier relationships – you can usually negotiate better terms with your suppliers

This is why it's important to consiste

ntly work on improving your business credit score (just as you would with your personal credit score before applying for a personal loan, mortgage or car loan). It takes time, but it’s worth the effort.

Step 1 - Register your business and pay your taxes on time

The first step for any business is to register with the relevant authorities. This ensures your business operates legally, files its taxes correctly and makes payments on time. all of which can boost your business credit rating. Here’s how to get started:

Sole trader

If you’re a sole trader, you must register as self-employed with HMRC. You can do this as soon as you start trading. If you choose to wait, you must complete registration by 5 October of the second tax year in which you trade. For example, if you start trading in 2024, you must register by 5 October 2025.

Limited company

If you run a limited company, you must register with Companies House. This process can take time as you need to provide your company name and address, appoint directors, and set the share structure. You can only register for corporation tax with HMRC after registering your company with Companies House, and you must complete this within three months of starting to trade.

Step 2 - Keep business and personal finances separate 

Whether you’re self-employed or manage a side hustle on the weekend, separating your business finances from your personal finances is not only sensible, it can also help improve your credit score over time. If you own a limited company, it’s also a legal requirement.

In today’s world, this is relatively simple to do. Start by opening a business bank account. This allows you to manage your business finances separately and quickly show your business turnover when required. 

Keep a balance in your account to avoid entering an unauthorised overdraft, as this could negatively impact your business credit score. If your business account has an overdraft facility, pay it off as soon as possible. Doing so shows lenders and credit reference agencies that you can manage your business finances well.

Step 3 - Avoid using personal credit

Avoid using personal credit for business expenses. While it may be tempting to use a personal credit card for business purchases here and there, it does not help your business credit score. Responsible use of business credit, however, can help improve the score. 

Many business credit options are available, these include: 

• Business credit card – it works like a personal credit card, you can use it to purchase goods or settle invoices. You repay it with interest later

• Business loan – a lump sum that you can use to buy things for your business. You repay it with interest over a defined term

• Invoice finance – a cash advance on unpaid invoices. You repay it once your client settles the invoice

• Business overdraft – short-term borrowing that allows you to withdraw additional money from your business account up to an agreed limit

Using any of these products responsibly and repaying them on time can help build your business credit score. But avoid making several credit applications in a short period, especially after a declined application. Also try not to max out or use a high percentage of available credit regularly. This can make your business appear desperate for credit and negatively impact the credit score. 

Step 4 - Consider opening a trade credit account with suppliers

Some suppliers you work with may allow you to open a trade credit account with them. This is a buy-now-pay-later type of arrangement, and it can help build your business credit score over time. As with any credit arrangement, keeping up with repayments can positively iinfluence your credit score, but falling behind can have a negative impact.

Not all suppliers offer trade credit, but if you have a good relationship with them, ask if they can share your payment history with credit reference agencies. A good track record with suppliers can help improve your business credit score.

Step 5 - Open and monitor your credit file

Once you complete the steps above, it’s time to monitor your business’s credit file to track progress. Open an account with any of the main credit reference agencies, such as Experian or Equifax, to view your business credit report.

It’s a good idea to check your credit file regularly. This helps you spot any incorrect information and fix errors with credit reference agencies quickly. Inaccurate records on your business credit file can lower the score, whereas fixing them can quickly improve it.

Avoid things like County Court Judgments (CCJs), as they can significantly lower your business’s score, and they remain on file for six years.