How to build business credit

Having good business credit can open doors. It might just help you get better loan terms, negotiate with suppliers and even attract investors. But how do you build your business credit so it’s in tip-top shape? Here are some practical steps to boost your business credit score.

Set up your business properly

Something as simple as setting up your business properly (if you haven’t done so already) can put you on the right track to good credit. 

Register your company and get the right licences

Registering your company and getting the right licences will help separate your business from your personal finances. As a result, you can build credit in your company’s name instead of your own and ultimately increase the business’s credit profile. Plus, matters don’t become confusing as you avoid mixing business finances with personal ones. Keep in mind that your business credit score is different from your personal credit score. While some lenders may look at both, it’s important to build strong credit for your business separately.

Get a Unique Taxpayer Reference (UTR)

Think of it as a UTR as your business’s very own tax ID. You’ll need it for all aspects taxes and credit related, be it applications or filings. Expect to receive your UTR when you register as self-employed or form a limited company.

Open a business bank account

Opening a business bank account makes tracking expenses all the much easier and helps maintain the legal split between you and your company. Shop around for an account that suits your needs, especially some banks offer perks for new business customers.

Use credit wisely

A business credit card helps you build credit history. Choose one that reports to major business credit reporting agencies. Take the Funding Circle Cashback business credit card offers 2% cashback on purchases for the first six months, up to £2,000, then 1% after that uncapped. It can be a smart way to manage expenses while building your credit profile while earning money back on your business spend.

Regardless of the business credit card you have, you should aim to pay on time, every time. Late payments—especially when they’re regular—hurt your credit score, so try and set up automatic payments or reminders to stay on top of bills. Even a single late payment can significantly impact your credit score. Be aware of when payments are due. 

Try to use less than 30% of your available credit if possible, as it shows lenders that you’re not overstretching yourself. ‘Credit utilisation ratio’ is a primary factor in your credit score. If you need to use more, try to pay it off quickly.

Work with credit-reporting vendors

Some suppliers report your payments to credit reporting agencies. Ask your vendors if they do this, as it’s an easy way to build a positive payment history. If they don’t, you might want to consider switching to suppliers who do should it make sense to do so.

Many suppliers offer trade credit, letting you buy now and pay later. This is another good way for new businesses to start building credit. Start small with trade credit and gradually increase your limits as you build trust with suppliers. Always pay on time to keep a clean record. 

With FlexiPay from Funding Circle, you can pay business costs and supplier invoices upfront using your card or by transferring funds directly from your account. Then choose to repay over 1, 3, 6, 9, or 12 months and enjoy more flexibility about who, when and how you pay. There’s no interest, just a simple flat fee per transaction, except when you pay your card in 1 instalment, then you enjoy no fee at all. 

Monitor and diversify your credit

Check your business credit reports regularly. It helps you track progress and spot any mistakes. You can get reports from major agencies like Experian and Equifax. If you spot any errors, report them immediately—incorrect information could drag your score down.

Having different types of credit can also boost your score. This might include credit cards, business loans and lines of credit. Consider a business loan, too. Taking out a loan and repaying it on schedule can boost your credit profile. Funding Circle business loans could help you invest in growth while building credit. Before applying for any type of loan, make sure you have a solid plan for using and repaying the loan.

Stay up to date with the details

Keep your info current with credit agencies and Companies House, which helps maintain an accurate credit profile. This includes your business name, address and industry classification. Outdated information can lead to issues with your credit report.

Again, avoid mixing personal and business spending. It keeps your accounts clean and your business credit profile accurate. If you need to use personal funds for business purposes, transfer the money to your business account first, then make the purchase.

Strategies for improving your credit score

If your business credit score needs a boost, there are several strategies you can employ, including using your business credit card:

Pay down existing debt

Reducing your overall debt can quickly improve your credit utilisation ratio and show that you’re good with managing the business’s finances. 

Request a credit limit increase

If you’ve been a responsible borrower, your credit card company might be willing to increase your limit. This can improve your credit utilisation ratio, as long as you don’t increase your spending. At Funding Circle, we offer credit limits up to £250,000 on our Cashback and FlexiPay options. 

Dispute any inaccuracies

Regularly check your credit report and dispute any errors you find. Even small inaccuracies can impact your score for the worse. Be thorough and make sure that reporting on your credit is accurate. 

Add positive payment experiences

If you have vendors who don’t report to credit bureaus, send them a letter asking them to report your positive payment history. There’s no guarantee they’ll say yes, but at least you’re posing the question. 

Don’t shy away from debt

Having debt on your business credit card and repaying it off in a timely manner shows lenders that you’re responsible with credit. So while no one is advocating for spending on your credit cards beyond the company’s means, maintaining a healthy balance where you pay the amount regularly and quickly can go a long way obtaining excellent business credit.  

Summing up: Be patient and focus on the larger goals

Building credit takes time. Stay consistent and you’ll likely see your score improve. As it does, you’ll get access to better rates and terms. Most major changes to your credit score take at least three to six months to show up, so don’t get discouraged if you don’t see immediate results. With these steps, you’re on your way to a stronger financial future for your company. Improving your business’s credit is an investment in your business’s future that pays off in numerous ways.

02/10/24: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.