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Credit score

Your credit score is used by lenders to work out how likely it is you or your business will be able to pay back money you’ve borrowed. But how does it work exactly? And does your business have a credit score of its own?

What is a personal credit score?

Before a lender will let you borrow money – whether that’s for a loan, credit card or a mortgage – they need to work out how likely it is they’ll get their money back. To do this, they look at your credit score.

Your credit score is affected by a number of different factors, including:

  • How much credit you have access to – This is basically a measure of how much credit you’ve already been given. For example, if you have three credit cards each with a limit of £5,000, you have access to £15,000 of credit in total.
  • How much of your credit you’re using – This is otherwise known as your credit utilisation rate, and it’s a measure of what percentage of the credit you’ve been given you’re using. For example, if you have a credit card with a limit of £10,000, and you currently owe £5,000, you have a credit utilisation of 50%. Lenders generally like to see this percentage being 30% or lower.
  • How many accounts you have – If you have 10 different credit cards, this could be a warning to lenders that you’re not managing your finances well.
  • How long you’ve had credit – As well as looking at the number of accounts you have and how much credit you have access to, they’ll also take into account how long you’ve had the accounts. The older the accounts, the better – as it’s an indication that you’re a trustworthy borrower.
  • How many hard searches are on your report – Whenever you apply for credit, lenders will pull your credit report so they can do a thorough check of your creditworthiness. This is called a hard search and will leave a record on your report. If you have lots of hard searches on your report, it might be an indication that you’re a risky borrower.

Your credit score can also be negatively affected by things like late or missed payments, repossessions, county court judgements (CCJs) or bankruptcy.

Credit scores are effectively mathematical and probabilistic models, and each lender will use their own version to work out your creditworthiness.

You can check and manage your score using a credit reference agency such as Equifax or Experian. The way the scores are calculated varies between the different agencies. For example, the maximum score – which indicates perfect creditworthiness – is 999 with Experian but only 700 for Equifax.

Do lenders just look at my score?

No, lenders will almost always look at the details of your credit report that go along with your score. The score will give them a top-line summary of your file, but it won’t tell the whole story.

Does my business have a credit score too?

Yes, it does! Most lenders will take your personal credit score into account when you apply for business finance, but they’re likely to check the credit score for your business too.

Your business’s credit score is calculated in much the same way as your personal credit score, and your company’s financial history can have an effect on your rating.

How can I check my business’s credit score?

To check your business’s credit score, you can use a credit reference agency like Experian or Creditsafe. You might have to pay a monthly or annual fee to have access to your report, especially if you want to make changes to your file.

How can I improve my business’s credit rating?

Improving your business’s credit rating is much the same as improving your personal credit score – you just have to make sure you keep on top of your finances.

Here are some of the main ways you can improve your score:

  • Fix mistakes on your credit file – With most credit reference agencies, you can create an account, view your report and make edits to anything that might not be accurate. This should be your first step because any inaccuracies could be having an adverse effect on your overall score.
  • Keep up with your payments – The whole point of a credit score is to demonstrate that you’re a reliable borrower. So if you miss payments, this can be a warning flag to lenders that your business can’t be trusted with credit. To avoid this, make sure you pay your bills on time.
  • Don’t borrow too much – Just because you have a business credit card with a £25,000 limit, it doesn’t mean you should use it all. Remember what we said about credit utilisation – using too much of the credit you’ve been given could be an indication that your business is struggling.

You can read more about how to improve your business credit score in our blog post.

If I apply for a business loan from Boost Capital, will you check my credit score?

Yes, when you apply for a business loan, we’ll check the personal credit scores for the main shareholders as well as your business’s score as part of the approval process. However, we only conduct a soft search, meaning it won’t affect your rating at all.

We don’t base our decision on your credit score alone – our decision takes into account the overall performance and financial health of your business.