What Is the Best Way To Build Business Credit (And Why Does It Matter)?

For the most part, business credit works in exactly the same way as consumer credit. Comparatively, few businesses can get by without external funding of some kind. From business loans to commercial credit cards to overdrafts and so on, most businesses fund major purchases (and many everyday operations) through such credit services.

Consequently, a business needs to have good credit to be considered eligible for products and services like these. As in the consumer sphere, an organisation’s credit score will determine its eligibility for lines of credit and the affordability of the services it is offered.

A business with flawless credit will gain access to the broadest range of credit facilities and will always be quoted the lowest available rates of interest.  Elsewhere, businesses with questionable credit may be counted out of the running entirely, or face the prospect of much higher borrowing costs.

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But what about smaller and newer businesses that has yet to build any kind of credit profile?  What is the best way to build business credit and is it something that’s worth investing in?

What Affects a Business Credit Score?  

Making the effort to build good business credit is essential, as it is the only way to ensure your business gains access to competitively priced products on the commercial lending market.

The logistics of building business credit begin with understanding exactly what affects a firm’s credit score in the first place. All credit reference agencies work in a slightly different way, but across the board focus heavily on the following:

  • Credit applications. This refers to every application you submit for any kind of credit facility, irrespective of whether your application is successful.
  • Payment history.  Any payment history discrepancies will be held against you, irrespective of how minor they may be. 
  • Length of time in business.  Many lenders are hesitant to offer lines of credit to businesses that have not been around for long and may have yet to demonstrate their viability.
  • Negative credit file.  If the applicant is bankrupt, has insolvencies, CCJ’s, defaults or anything that could drastically affect your credit score, you are likely to not qualify.

If the applicant is bankrupt, has insolvencies, CCJ’s, defaults or anything that could drastically affect your credit score, you are likely to not qualify.

What Are the Best Ways to Build Business Credit?

Building business credit is not something you can do overnight. Likewise, repairing a damaged credit file takes time. But in both instances, the earlier you get started, the quicker you’ll be on your way to good credit.

Here are just a few ways to begin building a better business for your credit going forwards:

  • Apply for credit facilities you know that you will qualify for, and ensure you are flawlessly responsible with your repayment obligations. This demonstrates you are a safe borrower, and helps build good credit.
  • Do not take on any forms of debt that are not necessary, as the number of outstanding loans and credit facilities you have can also play a role in determining your credit score.
  • Set up direct debits to ensure that you are never late with any of your payments and make the effort to repay debts early where possible.
  • If you anticipate or encounter any issues with planned repayments, contact your lender at the earliest possible stage. They may be able to offer a resolution that protects your credit score from further damage.
  • Apply for credit services via an experienced broker, who can ensure only a ‘soft’ credit check is conducted during the process.  This way, a negative entry will not be recorded on your credit file, even if your application is unsuccessful.

For more information on any of the above or to discuss your requirements in more detail, contact a member of the team at Rosewood Finance today.

By Craig Upton

Creating strategic partnerships and supporting data with extensive research in the latest trends Craig is well versed with most products within the financial sector. Craig has worked within the online marketing arena for many years, having worked with British brands such as FT.com, Global Banking Finance and UK Property Finance, specialising in bridging loans and specialist mortgage finance.

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