Ensure you don't lose business because of a bad credit rating
There are lots of challenges for SMEs in terms of compliance and regulation when trying to win business with larger organisations but even if they are on top of all of these things, some will fail the last hurdle of credit checks.
There is also growing evidence to suggest that employers are running credit checks on potential employees. And with access to finance already a challenge for SMEs, the health of your credit report has never been more important. A poor credit rating can not only limit your borrowing options but it can also lose you jobs and business.
Chris Lane, Head of Entrepreneurial Businesses at accountancy firm Kingston Smith LLP, says:
‘Credit rating is important to SMEs, although many don’t really know how the process works and how the credit agencies make their calculations. Businesses should understand what credit agencies are measuring to help maximise their position, wherever possible.’
If you've ever had a County Court Judgments (CCJs), defaulted on payments or had a bankruptcy order it will leave a black mark against your name when trying to secure credit.
But it isn’t only these more serious issues that may hinder you. Missing credit card payments or direct debits will also flag up on your file as will any credit refusals and if you collect a lot of these it will make matters worse. It can also lead to a vicious circle whereby the only people who will lend you money are in the sub prime market where there are extortionately high interest rates meaning you more likely to get into further financial difficulties.
Most lenders go through three main credit reference agencies for information on your financial past –Experian, Equifax and Callcredit. Credit agencies compile credit histories from a number of sources, including the electoral roll, County Court Judgments and how effectively past debts have been paid. Every time you open a new form of credit it will leave an electronic footprint on your record.
There are some basic checks you can make to improve your rating:
- Make sure there are no other mistakes on your file, such as other people's debts or payment
- Ensure all your debts are registered to your correct name and current address
- Register on the electoral roll at your current address.
- Don't make too many applications for credit in one go, including mobile phone contracts.
- Apply for credit you are likely to get. Also, ask lenders in the first place to only do a 'quotation search' - asking for a rate first - rather than a 'credit search'.
- Do everything in your power to keep up all agreed repayments ask for smaller repayments if you're finding it impossible.
- Close down any credit agreements you no longer use – don’t simply let an unused credit card sit at he back of a drawer.