Your credit rating: what, why, who, and how. 

A credit score, also known as a credit rating, is essentially your official financial reputation.  If you’re looking to borrow money, your credit score will heavily influence the decisions of the lender. This will affect whether they will lend you money, how much you can borrow, and which terms and interest rates will apply.  

For a small business, the ability to borrow money is crucial. So if you’re not yet familiar with your credit score or rating, now is the time to find out more! 

Business and personal 

Both individuals and businesses have credit reports or ratings. These are measured separately but are calculated in similar ways.  

Business owners should keep in mind that their personal score, as well as their business score, will likely come into play for many lenders when processing applications for a loan. Both need attention! 

How a credit score is calculated and by whom 

There are several factors influencing your score or rating as a business. These are combined by the credit bureaus or credit reporting agencies to come up with the relevant number.

The number will be based on: 

• Any active credit accounts, and any historical ones. 
• Your history of repayment and whether you have had late payments. 
• Any previous bankruptcies, defaults, or legal action. 
• All credit enquiries and applications. 

The exact calculations by which the final number is determined are private. However, different factors are weighted according to how much they affect the final score.  

Information is collected from banks and other lenders, and the report will include personal details that are public record. Lenders and Service providers, such as telecommunication companies, will provide information about any defaults or credit advances. 

There is more than one credit bureau compiling credit reports, so you may have slight variations in your ratings from the various reporters. In Australasia, the bureaus are: 

Equifax: This is the biggest reporting agency in Australia and also operates in New Zealand. Free credit reports are available. Their scale runs from 0-1,000. 

Experian: This Australian agency is very data-focused. It uses a scale that runs from 0-1,200. 

illion: This agency, formerly known as Dun and Bradstreet, also operates in both Australia and New Zealand. Their scale runs from 0-1,200. 

Centrix: This New Zealand credit bureau uses a scale that runs from 0-1,000. 

The various bureaus offer slightly different services. All provide free credit checks, although certain conditions may apply.  

When does your credit score come into play? 

A lender will access your credit score or rating any time they need to assess your creditworthiness. This means that it will become relevant when you (or your business) are applying for loans, credit cards, and any other type of credit. If you are borrowing from any bank or credit union, expect your score to be considered. 

Your score will be used to determine: 

• WHETHER the lender is happy to lend to you—i.e, if they are satisfied that you can pay the funds back. 
• HOW MUCH they are willing to lend. 
• THE CONDITIONS: the interest rates, fees, and repayment schedule. 

What’s a good score? 

This will depend on the agency—as explained above, some use a scale from 0-1,000 and some from 0-1,200. 

Equifax and Centrix: These agencies score credit from 0-1,000. As a rough indication, an excellent score would be between 800 and 1,000. A good score would be between 500 or 550 and 800.  

Experian and illion: These agencies score credit from 1-1,200. If your credit score is rated out of 1,200, then anything above about 850 would be considered excellent and around 650 to 850 would be considered good. The exact figure ranges can vary, but that’s a rough guide. 

When you get below those “good” or “excellent” ranges, you may begin to run into trouble securing credit for yourself or your business. You may also incur higher costs for the credit you can secure. 

How can you improve your credit score? 

There are many steps you can take to raise your credit score—and if you’re in business or headed that way, a good score may become very important. Small things can add up to a significant increase in numbers. Here are some quickfire tips for anyone looking to improve their score. 

• Request a copy of your report, from multiple bureaus if you would like to. Knowledge is power. 
• Check the reports for any errors. If, for example, you find a missed payment that you know was not missed, you can take it up with the bureau or the lender to have it corrected. 
• Set up automatic payments for as many bills as possible going forward. This reduces the margin for human error. 
• Make sure you’re not biting off more debt than you can chew. Lower your credit limit if necessary.  

• Show your ability to pay on time with easily manageable debt. This may mean opening up a credit card and using it to pay for things you would be buying anyway—to demonstrate that you are a reliable borrower. Of course, make sure to pay it off in full and on time every month. 

Of course, a crucial aspect of staying on top of your debt and making payments on time is managing cash flow. We have recently published a blog post with several ways a small business can manage cashflow. Take a look at that to discover how you can improve your credit score and general finances through better money management strategies. 

FundTap exists to help businesses obtain finance that’s low-risk, affordable, and simple. Find out more about how it works!