What Does Your Credit Score Mean For Your Business?

Key Takeaways:

Understanding both your personal and business credit scores is essential for small business owners, especially when applying for finance or managing risk.
Lenders use your credit history, repayment behaviour, and other financial data to assess your creditworthiness—so staying on top of your score can improve your funding options.
Your credit score isn’t fixed—by paying on time, avoiding frequent applications, and correcting any errors on your report, you can actively improve it over time.

Understanding your credit score is a vital part of running a small business, and staying abreast of any changes that might affect it will help you make strong, proactive financial decisions.

In short, your credit score (or ‘credit rating’) is an aggregate of your entire credit history and is used by providers to determine your eligibility to take on debt.

You'll have a personal credit score, and if you've been trading for a while, your business will have acquired a credit profile as well. Some lenders will look at your personal credit score if you’re set up as a sole trader or a partnership, as these business structures operate as an extension of you, rather than as a separate entity.

This means that you're personally liable for repaying the debts of the business, and the lender will want to explore your personal capacity to do so before deciding whether to approve your application.

Though this might sound daunting, there are a few simple, proactive ways to stay on top of your credit score and drastically reduce stress further down the track.

What is a credit score?

In Australia, one of the largest providers is Equifax (formerly Veda) [1]. Equifax uses a scoring system between 0 and 1,200. If you score between 622 and 725, it’s considered a “good” score. Between 726 and 823, you’re looking at a “very good” score, and anything above that is considered “excellent."

If your score is below 500, you may have a negative event listed on your credit score. This means that you may have missed repayments on existing credit contracts or be unable to repay current debt. If this is the case, it’s best to seek help early. Speak to your credit provider and get a repayment plan in place.

An event may have also been mistakenly placed on your file, and you may be able to have this removed. This is much trickier and may require proof of the mistake, so be sure to speak to your accountant or trusted business advisor if you’re looking to go down this path.

The 3 key players

The key parties that use and influence your credit score are:

You (the credit seeker);
Credit providers (such as a bank or telco); and
Credit reporting agencies (or bureau/body).

When you approach a provider for credit, they use a variety of means to assess your application. Typically, they'll ask a credit reporting agency for your credit score.

This agency stores your credit history (known as a ‘credit file’) and determines your credit score based on your repayment history, current loans or credit cards, pending credit applications, and whether or not you have defaulted.

Your credit score may vary depending on which agency has been contacted, what details they have on file, and how they prioritise your information to determine your score. Furthermore, the credit provider may have additional criteria that they use to assess applicants.

What if I have a low score?

Credit scores aren’t set in stone, so a low score isn’t the end of the world. Your score will improve as you demonstrate good financial practices, ensure you pay your bills on time, avoid late payments, and minimise the number of credit applications you make.

You may be surprised to hear that where you borrow money from is also relevant to your score. If you’re borrowing from a bank or credit union, it’s considered to be lower risk than if you were to borrow from a non-traditional lender.

Unsurprisingly, the amount you’re requesting and the number of times that you apply also have an impact on your score. This is because it gives the credit provider a sense of whether you’re ‘shopping around’ for credit. If you default on credit repayments, these may be listed on your credit file.

Keep in mind: a poor score isn't permanent. If you start demonstrating good financial management and show a strong track record of meeting repayments and managing debt responsibly, you’ll be well on your way to turning your score around. Want to learn how to improve your credit score? Read our top tips here.

What about credit scores for businesses?

Businesses also have a credit score, which is used to determine eligibility for credit. Credit providers will consider the size of your business, the industry you’re in, any public records (e.g., bankruptcy), previous loan applications, and trading history.

Depending on the structure of your business, providers and agencies may also take into account your personal credit score. For example, if your personal and business finances are intertwined—which can happen when you’re running your own business—it may be the case that credit providers will make an assessment based on an aggregate of the two credit positions.

Who can access my credit file?

Your credit score is only available to approved credit providers under the Privacy Act (1988), which include banks, telecommunication providers, utility companies, and building societies.

How to check your credit score

You can discover your credit score through tools like Get Credit Score or creditSavvy.

To get started, you'll need to provide a few details: full name, date of birth, residential address, and driver's license number. It's rare for credit reporting agencies to require your credit card details, so keep an eye out for scams.

Once you’ve got your score, you’ll want your ‘report card,' which is a breakdown of the factors contributing to your score. This can help you understand how and why certain things are having an impact, and whether there are any problem areas you need to address.

Be sure to double-check the details in your report are correct, as mistakes can alter your score, and contact the creditor to amend any incorrect details.

As mentioned earlier, this can be a tricky process so be sure to involve a trusted business advisor. In some cases, your advisor may have experience in this area and may be able to liaise with the provider to get the issue sorted out. If this sounds like you, it might be worth chatting to one of Valiant’s credit specialists. You can do this by giving us a call on 1300 780 568.

Summary

Practicing good financial habits and ensuring your details are up-to-date will help keep your score where it should be. Your credit score is important whether you’re looking to obtain finance in the short-term or not.

This article does not constitute financial advice, and any advice that is offered is general in nature. Please consult your accountant, lawyer or trusted business advisor before taking action. Valiant’s experienced team of credit specialists may be able to help, and you can contact the team by calling 1300 780 568.

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