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Is your business a credit risk?
See what creditors are saying about you and find out the secret behind a glowing credit report.
Rejected credit card applications, rocketing interest rates and hesitant business partners? Your firm has likely been flagged as a high credit risk.
Your company's credit rating is vital to its ability to function and conduct business. Anyone thinking of giving you a loan or trading with you will look not just at your company's credit file but also your own.
Use our guide to find out more about your own company's credit reputation and put yourself in a better position.
What is a credit file?
A credit file is created for any person or company who has made a credit application. You can check your own credit file for free once a year or if you have been denied credit in the past 90 days.
What will my credit file say?
Whether for an individual or a business, credit files provide information that helps lenders make a credit decision. The following information will be included on both company and personal credit files:
- Credit accounts. On your personal credit file, details of both consumer and commercial credit accounts will be listed. Your company credit file will only hold details of your commercial credit accounts.
- Credit enquiries. Each time you or your company makes an application for credit it will be recorded on your file. These listings will remain on your file for two years, and too many credit enquiries can damage your credit score.
- Defaults. Any missed or unpaid bills, even if they have now been settled, will be kept on file for five years. Defaults will make a lender far less likely to trust you with their money.
Since March 2014 credit files have also been required to include positive credit reporting, showing payments made on time, as well as those that are late or long overdue.
Your personal file will contain:
- Personal information. Name, date of birth and employment history.
- Commercial credit information. Details of directorships or commercial credit accounts you are involved with.
- Public record information. Any court judgements you have, including bankruptcy and insolvency, will be on your credit file.
Your company's file will contain:
- Company details. Information on structure and current shareholders.
- Public record information. This will include any legal matters or action taken against your firm by the Australian Securities and Investments Commission (ASIC).
- Personal Property Securities Register (PPSR). Any information the PPSR have concerning your company's possessions will be on your credit file.
Your business credit score
The information in your credit file will create an overall credit score, ranking the credit risk of you or your business. Company credit scores are based on grades and range from a D-grade, which is where your business is classified as a high financial risk, to AAA-grade, where your company is deemed to have a strong financial capacity. There are 21 grades in total.
My company is a credit risk, what should I do?
If you've found out your business has been flagged as a credit risk, there are a few things you can do to appear as less of a risk to lenders and improve your business's credit score:
- Make payments on time. This is the easiest and most effective way to quickly increase your credit rating.
- Stay away from legal problems. Any involvements with the courts will be highlighted on your credit file and will tarnish the image of your company.
- Keep in touch with your creditors. If repayments are getting out of hand or you are evaluating your financial situation, keeping your creditors or business loans manager in the loop may help your situation down the track.
My company is not a credit risk, do I need to do anything?
Even if you and your company both have excellent credit ratings, it's still worth having a look through your file. Understanding what kind of activity lenders view as risky will help you to maintain that score and improve it further.
Questions we've been asked about business credit
Can I check my credit score regularly?
There are online credit reporting agencies that will let you view your credit rating for a fee.
My company doesn't have a credit history, so how are we a risk?
Your credit file is designed to help creditors predict the type of customer you will be. Without any historical information this is difficult to do and could deter lenders.
I have a good credit history, so why have I been refused credit?
It's possible that you or your company have been a victim of fraud. Contact your bank and any lenders straight away.
Image: Shutterstock
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