What does your business credit score mean?

How do I get my business credit score?

You may be wondering how to find out your business credit score. Unlike personal credit scores, which are easier to obtain from a credit reporting agency, business credit scores are calculated by specific business credit reporting agencies. These include companies like CreditorWatch, Equifax, Dun & Bradstreet, and Experian. They gather data from various sources to generate a score that reflects your business's creditworthiness.

In Australia, there are several ways to check your business credit score, and keeping an eye on it is important. According to a recent survey, almost 40% of small businesses in Australia do not monitor their credit scores, which can put them at risk of being unaware of financial issues until it's too late.

One of the easiest ways to access your business credit score is through services like Thriday. Thriday offers a comprehensive financial platform that allows you to view your business credit score when you subscribe, including the free plan. Monitoring this score regularly can help you stay on top of your business's financial standing and make well-informed decisions.

If you haven't already, sign up for Thriday to access your business credit score and other essential financial tools. It’s a simple, effective way to keep track of your business's progress.

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What is a good credit score for a business?

Business credit scores typically range from 0 to 800, but each reporting agency has its own proprietary scoring system. A higher score indicates that lenders and suppliers consider your business less risky. For most business credit rating systems, a score of 700 or above is considered a strong score, demonstrating that your business is managing its financial obligations effectively.

However, the definition of a "good" score can vary depending on your industry and the specific credit reporting agency. In general, the higher your score, the more likely you are to receive favourable terms from lenders, insurance companies, and suppliers.

In Australia, aiming for a solid business credit score is essential, especially given that 60% of businesses report struggling with cash flow problems. A good score can give your business the breathing room it needs during challenging times by securing better financial terms.

What is the purpose of a business credit score?

Your business credit score serves a crucial purpose: it tells potential lenders, investors, and vendors how likely your business is to repay its debts. It functions similarly to a personal credit score but is specific to your business's financial behaviour.

Here are some ways in which your business credit score can influence key decisions:

• Securing business loans: A strong business credit score makes it easier to qualify for loans or lines of credit with favourable interest rates.
• Negotiating supplier terms: Suppliers may offer better payment terms, such as extended time to pay invoices, based on your creditworthiness.
• Insurance premiums: Some business insurance providers use credit scores to determine premium rates so that a good score can save your business money.
• Attracting investors: Investors want to know that their funds are going to a financially responsible business. A high business credit score can increase investor confidence.

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What affects my business credit score?

Several factors impact your business credit score, and knowing what they are can help you improve it over time. The key factors include:

• Payment history: Just like personal credit scores, your business credit score is heavily influenced by how consistently you pay your bills on time. Late payments, even by a few days, can negatively impact your score.
• Credit utilisation: This refers to how much of your available credit you're using. If your business has multiple lines of credit, keeping your usage below 30% of the total available credit is a good rule of thumb.
• Business size and age: The length of time your business has been operating can affect your score. Newer businesses tend to have lower credit scores due to a lack of credit history.
• Outstanding debt: If your business carries a significant amount of debt, this will likely lower your score. Keeping your debt manageable is vital to maintaining a healthy credit score.
• Legal filings: Bankruptcies, tax liens, and other public records can severely damage your business credit score. It's important to avoid legal issues that could poorly affect your business's financial health.

Is my business credit score different from my personal credit score?

Your business credit score is entirely separate from your personal credit score. While both serve similar purposes — to reflect your creditworthiness — they are calculated using different methods and used for different lending decisions.

For example, your personal credit score is based on your individual financial habits, such as how well you pay your mortgage, personal loans, or credit cards. On the other hand, your business credit score is based on your business's ability to meet its financial obligations.

However, the line between personal and business credit scores can sometimes blur for sole traders and small business owners. If your business is relatively new or if you haven't established a separate business credit history, lenders may rely on your personal credit score to assess your business's creditworthiness.

It's important to build and maintain a strong credit history for both your personal and business finances to ensure that you have the best options available for future growth.

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Why Thriday is the best tool to track your business credit score

As a business owner, you already have enough on your plate without having to chase down your business credit score constantly. That's where Thriday comes in. Thriday is more than just an accounting tool — it provides a complete financial solution that helps you manage your accounting, tax, and credit scores all in one place.

When you subscribe to Thriday, you can easily access your business credit score, giving you a clear view of your financial standing. It's the smart way to stay on top of your business's financial health without the hassle.

By signing up for Thriday, you can monitor your business credit score, track your financial performance, and ensure your business is on the right path for growth.

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Credit score risk rating

Here is a breakdown of what your Thriday risk rating means:

1. Very low: Your business has an excellent record of meeting financial commitments. This means lenders and suppliers will likely offer you favourable terms as they trust your ability to pay on time.
2. Low: Your business is doing well and generally meets its financial commitments. However, your ability to pay could be affected if the economy or your industry faces challenges. Lenders and suppliers may still extend favourable terms with slightly more caution.
3. Neutral: Your business is currently stable and able to meet its financial obligations. However, if business conditions worsen, there could be some strain on your ability to pay. It's important to monitor your cash flow and pay your bills on time, as lenders and suppliers will keep an eye on this.
4. Acceptable: Your business is managing its financial commitments but could be affected if the business environment changes for the worse. Lenders and suppliers may offer terms, but they'll monitor your payments closely.
5. Potential risk: Your ability to meet financial commitments depends on favourable conditions. Lenders and suppliers may be cautious about extending credit to you and will closely watch your payment behaviour.
6. High: Your business may be new and not have a sufficient track record of paying debts or suppliers on time. Due to this, you could be at a significant risk of being unable to meet your financial obligations. Moving forward, keep track of your cash flow and pay your bills on time to improve your credit score. Lenders and suppliers will likely be very cautious, so you'll unlikely be approved for credit right now.
7. Impaired: Your business is highly vulnerable to defaulting on payments. This means lenders and suppliers will seriously consider whether to do business with you, as the risk of non-payment is high.
8. Defaulted: Your business has defaulted on its financial commitments or is insolvent. This indicates that you are no longer able to trade on credit terms, and recovery or restructuring may be necessary.

Final thoughts

Your business credit score may seem like just another number, but it can significantly impact your business's success. A high score opens doors to better financing options, more favourable supplier terms, and even lower insurance premiums. Understanding how your score is calculated, what affects it, and how you can monitor it is essential for making wise financial decisions. If you haven't checked your business credit score lately, now is the time. Tools like Thriday make it simple to stay informed and take control of your financial future. Take the first step by signing up for Thriday today to access your business credit score and keep your business moving in the right direction.