It might seem like a simple question, but when you’re in business your credit rating may or may not have a direct impact on your ability to do business.
As an individual, it is likely you have been credit checked in the past – when taking on a new utility bill, credit card, mortgage or loan, for instance – and this has become so commonplace that many of us probably don’t feel too concerned about it.
But in business, a credit check can determine whether a supplier allows you to have a line of credit, and how much they are willing to risk before demanding payment from you – and this can affect everything from your cash flow and liquidity, to your bottom-line profits and ability to compete.
Your credit rating is particularly significant if you are in the grey area between being an individual and being a company.
Sole traders are likely to see their personal credit history checked by suppliers, even if your finances as a one-person business are kept separate from your individual everyday banking and current account.
And if your company is relatively new, it is again likely that your personal credit rating – along with those of other company directors and partners – will be checked to give an idea of how well the company’s finances are likely to be managed.
One of the big frustrations can be if you have never relied on borrowing before, because while this might seem like the most prudent means of managing your money, it also does not give any indication of how well you can manage debt.
As such, people with no credit history at all could find it difficult to get approved for a business loan.
In practice, although it might be frustrating to do so, you may find it beneficial to obtain a credit card or other lending and use it prudently.
Paying off the balance in full before the end of each month should avoid any interest charges, credit cards entitle you to additional protection on large purchases, and it can fairly quickly improve your credit rating by showing you are able to use debt wisely, without getting out of your depth.