What is a Business Credit Score

Updated: February 01, 2024 Author:

Quick Answer: A business credit score is an algorithmic representation of a company’s financial standing. Scores range from 1 to 100. The lower a business credit score is, the higher the risk there is of the company failing. A good credit score for a business is 80+.

    What are the Business Credit Score Ranges

    For business/commercial credit scores, the ranges are 1 to 100. The higher the score, the better. Bad business credit scores are considered those below 49. A good business credit score is 80+.

    How to Check a Business Credit Score

    There are 4 Designated Credit Reference Agencies you can use to check a business credit score. Those are:

    1. CreditSafe Business Solutions Limited
    2. Dun & Bradstreet Limited
    3. Equifax Limited
    4. Experian Limited

    The tables below illustrate the business credit score ranges between each of the 4 designated CRAs.

    Equifax ScoreCheck Credit Score Ranges

    Risk RangeRisk Level
    0 – 19Very high risk
    20 – 34Below average
    35 – 49Average risk
    50 – 64Above average
    65 – 79Very good
    80 – 100Excellent risk
    Source: Equifax.co.uk

    Creditsafe Business Credit Score Ranges

    Score RangeRisk Level
    71-100Very Low Risk
    51-70Low Risk
    30-50Moderate Risk
    21-29High Risk
    1-20Very High Risk
    Source: Creditsafe.com

    Dun and Bradsheet PAYDEX Score Ranges

    Score RangeRisk Level
    0 – 49High Risk
    50 – 79Medium Risk
    80 – 100Low Risk
    Source: DNB.com

    Experian Business Credit Scores

    Risk RangeRisk Level
    Below 40High risk
    40 – 80Medium risk
    80+Low Risk
    Source: Experian.co.uk

    Understanding the What and the Why of UK Business Credit Scores

    The UK Business Credit Score system is the result of the Credit Data Sharing Scheme (CDSS). This is a government-mandated initiative that was brought into effect on 1st April 2016. Its purpose is to help SME (Small and Medium Enterprises) access lending more easily by making it simpler for challenger or alternative banks to the mainstream lenders to view and assess a business’s creditworthiness.

    The CDSS gave way to the Small Business, Enterprise, and Employment Act 2015. The purpose was to improve competition in the lending space by making it easier for challenger banks to assess the creditworthiness of applicants, to decrease rejection rates, and to make finance fairer and easier to access. Before this Act came into effect, the majority of SME loan applications were to one of four major banks and the rejection rate was around 50% despite many of the applicants being viable candidates for the products they were applying for. With the Act in place, banks can still refuse business loans and finance products, but when they do, they have to signpost applicants to alternative providers that may be better suited. Additionally, major banks are now required to report the data they hold to Credit Reference Agencies.

    Alternative providers have access to business credit reports through Designated Credit Reference Agencies and can conduct their own financial analysis, the same way as the big banks can, and may decide to approve finance where other firms wouldn’t.  It’s worth noting that the size of the UK SMEs is not small. As of 2023, 99.9% of the private sector were Small to Medium-sized Enterprises. 26% of those have employees. When these businesses fall on hard times, lines of credit will be crucial. This was the reason for the government intervening in the private sector to bring about change through legislation.

    The Importance of Your Business Credit Score

    Between 2021 and 2022, 345,000 UK businesses went under. 11.8% of businesses within their first two years didn’t survive to see their third year. Most people starting a business know about the struggle to get past the 5-year hump. The first five years in business are the hardest. Not many are aware that part of the reason for that struggle is accessing finance when you need it most. Your business credit score can be a blockade. Particularly for startups because they won’t have reporting history from trade suppliers unless preparation was done by focusing on building the business credit score from the start. To ensure you have access to affordable finance when you need it, business owners have to be building their business credit score from day one, so that if (or when) finance needs raised, or investors need persuading, the business credit score shows your company on a solid financial footing.

    How Business Credit Scores Work

    Business credit scores are algorithmic evaluations. That’s why there’s no universal model for credit scoring and you’ll likely have a different business credit score with each of the Designated Credit Reference Agencies. They each use the same data sets but apply in-house algorithms to create a credit score. The data that feeds into the CRAs are business filings with Companies House, information from suppliers, and vendors.

    Who Can Carry out Business Credit Checks

    Unlike personal credit checks which require permission, or a very good reason to check your personal financial data, business credit checks are different. As the information is public, anyone can run a credit check on a company. However, because there are usually admin fees involved, it’s usually only businesses with a vested interest in another company’s financials that will credit check a business entity. As with your personal credit report, there are soft checks and hard checks, so it is important to limit your applications for credit to prevent lowering it substantially.  

    The Details Reported on a Business Credit Report Include:

    • The registered business name and contact information
    • A credit score (different between CRAs)
    • Payment history
    • Public records
    • Business financials, including the companies Purchase and Loss (P & L) statements
    • Trade references
    • Industry information

    The industry information section is a whole-of-industry comparison. While one company could have a solid business credit score, if it is underperforming in comparison to industry metrics, that can lower the business credit score. The largest barriers to finance will be for early-stage startups in high-risk industries, such as highly regulated spaces like vape stores or certain sectors with a high rate of chargebacks such as the tourism sector, and any type of subscription service.

    When a business credit score is low, obtaining lines of credit will be difficult using the standard methods. Most trade account providers work with new businesses to come to an individual agreement. It’s not uncommon for a trade account to have a starting line of credit of £1,000 when order values are likely to exceed that. To overcome the hurdle, it’s usually a requirement to provide security, a guarantor, or pay a deposit to cover the excess cost beyond the credit limit.

    Does Your Personal Credit Score Affect Your Business Credit Score?

    Yes! Just like a personal credit score can be zero when there has been no financial reporting activity, startup businesses have a credit score of zero. When there’s no historical data on a company, checks move to the business owner’s credit report. A bad credit score reflects poorly on the business and can see trade accounts rejected, loans refused, and difficulty securing commercial tenancy agreements. For any credit that is approved, interest rates may be higher due to the higher risk to the lender, service provider, or supplier. As a general rule, when starting a business, it is best to do so when you have a good credit score. That way, you can use your personal creditworthiness to build the creditworthiness of the business. It doesn’t work the other way around. Business credit scores are only a reflection of the business and not the company Director.