Post-pandemic financial management is likely to include an element of rebuilding for the vast majority of businesses – regardless of size. For many, this will mean rebuilding their credit score over the coming year. Whether a business has utilised the furlough scheme or had to lay off employees, the pandemic could well have had an impact on finances. Not only has the pandemic created immediate financial problems, but these struggles can have a lasting impact on credit scores.
Why is this important? Credit reports are used by banks and suppliers to decide firstly, whether to offer credit and secondly, how much credit to offer. A poor credit score can limit options when it comes to searching for credit and suppliers. In light of this, here are the six actions to help rebuild your credit score in the wake of the pandemic:
1. Incorporate your business or form a private limited (ltd) company
If your business is new or you haven’t already you should incorporate or form a private limited (ltd) company. Doing this makes your business become a legal entity with an established identity from its owner. This allows you to access credit on behalf of your business and should act as a clean slate that you can build on.
2. Establish a good relationship with your suppliers
If you work with the same suppliers on a regular basis and you have a good financial rapport with them, ask if you can open a credit account with them. Establishing good credit accounts over a long period of time will help to improve your credit score which will provide them with all the information they need to provide your business with credit.
3. Stay up-to-date
If there are any changes to your business, financial or otherwise, be sure to inform any customers, lenders, suppliers, banks, and directories like Companies House of the changes. Inconsistencies or inaccuracies in your information can make your business look untrustworthy and unreliable. This could negatively impact your credit score.
4. Make your payments on time
This may seem like an obvious step in building your credit score, but it can’t be forgotten. Creditors will want to ensure that they can get their investment back on the agreed date. When a business fails to make its payments to a creditor, this can lead to negative reports and the appearance of financial instability. A series of negative credit reports can hurt your business credit score and reduce your ability to get credit.
5. Limit your credit applications
You may think that many credit applications would be a good thing – more credit equals a higher credit score, but this isn’t often the case. Credit applications often require credit searches on your business which are recorded on your credit report. If you do too many credit applications within a short period of time it can suggest that a business is struggling to secure funding, which can scare off lenders and negatively affect your credit score. One way to get around this is to ask for a quote first before committing to a full credit application.
6. Monitor your business credit score
Your credit score can change for a number of reasons so it’s important to always stay in the know. Most suppliers of credit reports also offer a facility for you to monitor your score throughout the year. This way you’re always kept up to date with any changes that could impact your credit eligibility. It is also important to point out that your company credit score can vary as each credit reference agency will use its own benchmarking and set of criteria to create a score.
When it comes to improving your business credit score there is no one way that will instantly fix it for you. Instead, it’s better to take a multi-faceted approach where you identify what the cause of your low credit score is and then take multiple steps towards improving it. One of the best ways to improve your credit score is to keep on top of your credit management process. Managing your credit is key to a well-functioning business and a healthy cash flow.