When you become a company owner, your business credit score suddenly becomes hugely important in terms of lending criteria.
But whilst that crucial number will shape what you can borrow and from whom, too many entrepreneurs pay little attention to it and are unsure how to read a credit report. Whilst Cashsolv adopt different lending criteria when it comes to their fast business loans, here are the basics on understanding your credit report.
What is your credit report?
The three main credit bureaux provide data to potential lenders, indicating whether or not you are a good credit risk. Their reports will cover your corporate structure, your business sector, your financial performance to date and your payment history.
Whilst each bureau’s report will cover similar information, they won’t be identical, so you should aim to read each one in depth and quickly correct any errors.
Information about your company
Your credit report will open with basic information about your business, such as contact details. There may also be data on your industry sector, any group companies, annual turnover and key personnel.
Your trading history
Almost certainly, the report will indicate how long you have been in business – the longer the better from the point of view of a lender. If you’ve been trading for five years or more, this proves that you can weather seasonal downturns as well as broader contractions in the economy.
Your payment history
This is the big one: your financial behaviour to date is the strongest possible indicator of whether you will be a responsible borrower. The payment history section may be split in two: half on trade payments (whether you pay your suppliers on time) and the other half on loan or lease payments.
Your legal history
Unsurprisingly, any outstanding lawsuits, bankruptcies or County Court Judgments will be included in the report, and will significantly affect your ability to access credit. If you have a number of CCJs, this strongly indicates that your word is not your bond and that you are unlikely to repay any credit that you are offered.
Interpreting your credit score
Each credit bureau calculates your score based on the information it has collated. That means that your score may vary from bureau to bureau. Unlike personal credit scores, business scores are between 0 and 100, with 80 and above being excellent and 49 or below indicating a poor credit risk.
In addition, Dun & Bradstreet and Equifax attempt to predict your future behaviour via a separate rating, whilst Experian calculates your credit score using a broader range of data.
Make sure you correct any mistakes
The most important thing is to ensure that your report is accurate. If positive transactions have not been recorded, or if court judgments belonging to similarly named companies have somehow found their way into your report, then you need to notify the bureau to get things changed.
Whilst you will have to pay for your credit report, you’ll pay a great deal more if there are errors and you’re refused credit or charged a higher interest rate.