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Credit Report

A guide to credit reports, credit scores, credit checks and bad credit.

Is it safe to lend to that business? Will it make a good long-term partner? It makes sound business sense to know your customers. Credit reports allow you to prove your financial stability and check that of individuals and businesses you’re considering engaging with. The idea being to safeguard yourself against late payments and bad debt, and to only build working relationships with businesses that can prove they have robust working capital and that are at low risk of bankruptcy. 
 

What is a credit report?

A credit report is a detailed account of a business’ credit history. It covers all credit activity, namely the timely repayment of debt or otherwise. In the UK, companies generally fall into two categories. Those who are registered at Companies House, private and public limited companies, and non-incorporated entities, sole traders and partnerships. The latter have no obligation to file documentation for public viewing. 

What does a credit report cover?

A credit report on a Ltd or Plc company will detail the history of a company. It will cover when it was established, the officers of the company, shareholders, financial statements, and any mortgages or charges. Any publically recorded adverse information is also listed such as CCJ’s, CVA’s, winding up petitions and in the worst case scenario, insolvency information, administration and liquidation. It will also detail any current and previous associations of the directors. On a more positive note, the credit report will detail the level of credit that is recommended and the ability to pay to terms.
 

In the case on a non-incorporated business, the credit report will be created from information gathered from a variety of sources and scored/rated according to the amount of information obtained. In the vast majority of cases, the report will not include financial statements as there is no public registry for sole traders and partnerships.
 

Where does the information in a credit report come from?

The information in a credit report has its basis from the documentation filed at Companies House in respect of a registered company but will also contain additional information from sources gathered by the CRA.
 

Why is a credit report important?

A good or bad credit report can affect all areas of your business. For companies, a credit report can mean the difference between approving a supplier relationship, or not. Equally, looking after your own business’ credit report is essential – regularly check what potential commercial partners or customers will see if they request your business credit report. It could mean the difference between getting credit from another company and being refused. It is good practice to regularly make sure all the information on your own report is accurate. 
 

What is the credit score in a credit report?

A 21st century credit report will not only provide a credit score/rating via a scoring algorithm but also show the company’s ability to pay to terms and furthermore predict its odds of future failure.

What is a credit score based on?

All lenders calculate scores in their own way. However, key information used to create the credit score includes the strength of information confirming trading performance, past credit history and the circumstances of the credit application. 
 

How to deal with a customer with bad credit

If you decide to do business with a company that has a poor credit history, or an existing relationship changes due to bad credit or the fluctuation of a company’s financial performance, it’s essential to have a robust credit risk management strategy in place. This should involve carrying out thorough credit checks in advance of agreeing new supplier/customer contracts and conducting ongoing risk monitoring.

More about preventing bad credit? 

Download Understanding Credit Risk for Dummies

Where can I get a free credit check?

Get a comprehensive, free business credit check by filling in the company you want to screen. 

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