Does my business credit score affect my eligibility for business energy tariffs?
Unlike the domestic market, business energy suppliers can choose which customers they want to deal with based on their credit score and history. Business energy is expensive and is used in large quantities, so suppliers are more conscious about the risks involved with supplying gas or electricity to businesses that may be unable to keep up with payments.
A low credit rating, or being in a high-risk industry, may mean that your choice of energy supplier and energy tariffs is limited. Some energy suppliers simply won’t accept businesses with a poor credit history or a poor credit score, while others may not give you access to their cheapest offers.
Even if they do accept a low credit business, the energy suppliers might:
- Charge an additional premium.
- Ask for a security deposit.
- Insist you pay by direct debit (although some suppliers offer a discount for this arrangement).
- Install a pre-payment meter.
When energy suppliers go through the process of comparing business electricity prices for customers, they tend to offer their best rates to those with a good credit rating. As such, any supplier about to offer your business an energy contract is likely to run an online search with a credit agency to find out your score. It is worth noting that some credit rating services estimate one in three businesses are being denied the cheapest rates because they fall below the required minimum credit score threshold.
There may be certain businesses – especially startups - without a credit history, or with a relatively low score. As such, suppliers will be reluctant to offer you their cheapest prices as they have no guarantee you’ll be able to keep up with your payments.
Energy suppliers work closely with the credit reference agencies to ensure that:
- Customer data they receive is accurate.
- Systems being used for capturing consumer information are reliable.
- Staff is fully trained and aware of the impact that sharing information with credit reference agencies will have on their customers.
- Correct processes and procedures are in place to query and ‘hold’ accounts if there is a dispute which might have a negative impact on a customer’s credit record.
- Your business’s credit score is calculated by the Credit Reference Agency (CRA), and is based on all the information lenders share regarding your financial history.
The important point to note here is that all lenders do not treat credit scores in the same way. While some may be prepared to overlook a certain number of missed payments if they believe that you’ve generally been paying promptly, others may not accept any missed or late payments at all. This will impact your overall credit score.
A small business’s credit rating based on a scale of 1-100, with higher numbers indicating that a firm is in a stronger financial position. It is a variable number, and while agencies will use different methods to calculate your score, it's vital to ensure it's as high as possible.
A business’s credit score report will detail the following:
- A credit score and credit summary.
- Key facts about the business.
- Corporate registration and contact information.
- A summary of collections and payments.
- Uniform Commercial Code filing information.
- Banking, insurance and leasing information.
- Bankruptcy filings.
- Judgment filings.
It’s worth checking your credit file once in a while and speaking to one of the credit agencies to get advice on how to improve your credit rating.
Tips on maintaining and increasing your business credit profile
Speaking to a credit rating agency and working through your finances is an effective way to improve your score. However, as a general rule of thumb, sticking to the following should ensure you’re not damaging your credit rating:
- Paying your bills on time. Lenders and suppliers base your credit score on your payment history and the amount of outstanding debt. If you have taken out numerous small loans and paid them back on time, then this will have a positive impact.
- Know Your Score. There is always the risk that credit agencies could get something wrong , so you should check your score with them once a year to highlight any errors – they are obliged to change the report if you can prove that they have made an error.
- Submit your accounts on time – make sure that all your accounts are up to date and submitted within the correct time scales.
- Personal Finance – sole traders and partnerships will often be accepted or refused on the credit score of the person making the application, not that of the business.
- Sources of Information – a lack of information on your business profile can be just as harmful as a poor credit history. You may need to encourage suppliers who establish credit for your business to report positive information.
- If you had financial links to other people which are no longer relevant (such as an ex-partner) ask for them to be removed from your records.
- Close accounts you no longer use – a lot of unused credit you can access without further checks may negatively affect your rating. It can also make you more vulnerable to fraud.
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