Business credit score.


31st October, 2019

Know Your Score: Not enough business owners check their credit health

Checking your business credit score is a critical factor for owners seeking to borrow money for small businesses. Here’s why.

When applying for loans, lenders take several factors into account and, for small business owners, this may include their business credit scores.

But recent research by OnDeck Australia found that 53 percent of small business owners aren’t aware that a credit scoring system applies to Australian businesses, which impacts their access to capital and trade terms with suppliers.

Healthy business credit scores improve the likelihood of a business owner receiving lower interest rates on commercial loans, while exceedingly negative scores may make it difficult to receive a loan at all.

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OnDeck Australia’s survey, undertaken by independent research firm Honeycomb Strategy this year, found that 47 percent of business owners are aware of credit scores (a big jump from seven percent in 2018), but only a third of these know what their score actually is.

Checking, verifying your business credit score

Your business credit score is derived from your business credit file, which is maintained by reporting bureaus such as Equifax.

“Your business credit score is a numeric indicator derived by credit reporting bureaus from your credit file,” said Cameron Poolman, chief executive of OnDeck Australia.

“This number is one of the factors lenders and some suppliers use to assess the risk of lending to your business.”

The credit file maintained by the reporting bureaus will contain the following types of information:

  • General business information like your address, industry sector and so on
  • Information about the credit relationships you have with suppliers
  • Your payment history with any current business loans and business credit cards

If you have a good track record of borrowing and making repayments on time, then you should expect your credit file to result in a good business credit score. But mistakes can happen.

“The reporting bureaus want the data they have on your business to be as accurate as possible, but sometimes that might not be the case.

“As a result, bureaus offer ‘dispute processes’ that allow business owners to make corrections to any verifiable incorrect information on their credit profile,” Poolman explained.

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If your credit score isn’t looking as good as you’d expect, then it may warrant you purchasing your entire credit file from the bureau. If there are entries on the file that you can confirm are incorrect, then it’s time to raise a dispute.

Tips for maintaining a healthy credit score

Here’s some general guidance for small business owners to follow if they want to maintain a top-notch credit score, whether personal or business:

  1. Make sure you know your personal and business credit scores, and check them on a regular basis as they can change. If you think something is inaccurate then raise a dispute with the bureaus to have it corrected.
  2. Use the credit you need – whether through finance providers or trade accounts with your suppliers. Your business credit profile is a reflection of how you have used credit in the past, so avoiding it altogether, or using improperly, could make it difficult for your business to access financing. Use credit responsibly as you need it.
  3. Stay on top of your finances to make sure you have adequate funds to pay your bills, loans, and suppliers on time. If you think you may have a cash flow issue, consider talking to your accountant or broker for advice on your options before you have to make late payments.