Your credit rating is crucial if you’re applying for a business loan. And it’s not just your business credit rating that matters – your personal credit rating, and those of any other company directors (if applicable), could also impact your application.
Key points about business credit scores in Australia
- Your credit history with lenders and suppliers determines your business credit score
- The minimum credit score for business lending is around 400
- If you’re applying for a business loan, the lender will check your business credit report and the credit report of each business owner
- It can take up to three years or more to build business credit
What is a business credit score?
Your business credit score or credit rating is a number between 0 and 1,000 or 1,200 that represents your business’ trustworthiness as a borrower. Business credit scores are issued by credit rating bodies (CRBs) based on your credit history with lenders and suppliers.
The higher the score, the less of a risk you or your business are considered to be. Based on its credit score, your business will be ranked into a category, which indicates how likely it is to have an ‘adverse credit event’ (e.g. late payments or defaults) in the next 12 months.
In addition, every person who's ever borrowed money, taken out a credit card or applied for a post-pay service (e.g. utilities or mobile phone account) will have a personal credit score.
The main credit agencies that provide credit ratings in Australia include Experian, Equifax and illion.
Australian credit score scale
|Agencies||Below Average||Average||Good||Very Good||Excellent|
|Experian||0 - 549||550 - 624||625 - 699||700 - 799||800 - 1000|
|Equifax||0 - 509||510 - 621||622 - 725||726 - 832||833 - 1200|
|illion||0 - 299||300 - 499||500 - 699||700 - 799||800 - 1000|
Pro tip: The lower you or your business is down this scale, the less likely you are to
be able to secure the finance you need.
That doesn’t mean that all is lost. Several lenders specialise in bad credit loans. But if you do find a willing lender, you can expect to pay more for your finance to reflect the added risk.
What affects your business credit score?
Lenders and credit agencies assess your credit score based on factors such as:
- Your trading history: It’s easier to establish your business creditworthiness if you have a solid trading history of making on-time payments with suppliers and creditors.
- Any credit applications your business has made: Each loan or credit application (and whether or not it was successful) will appear as a note on your credit file.
- Payment defaults or late payments: If your business has defaulted on previous finance repayments, payments to suppliers, or even made late payments, it could negatively impact your business credit score.
- Other publicly-available information: This could include unpaid taxes to the ATO, security interests registered in the Personal Property Securities Register (PPSR), liens placed against your property or other assets, financial statements, etc.
- Legal matters: Any complaints, court judgements or filed lawsuits involving your business or its directors.
Director financial information: Declared bankruptcies or previous insolvencies
will impact your credit rating.
Pro tip: It takes time to build your business credit rating (generally up to three years) because it involves establishing a proven track record of financial reliability.
Business credit score vs personal credit score: Which do lenders look at?
The credit score your lender will look at will depend on the type of loan you
Personal loan: Lenders will only look at your personal credit history when assessing a personal loan application. Taking out a personal loan for business is not recommended, as you’ll be personally liable for the debt. This means you could lose your home and personal assets in the event of a default.
Consumer credit report example
Business loan: If you’re applying for a business loan, lenders will
check your business credit report and your commercial individual score. You may also
be asked to provide a personal guarantee for some types of business loans,
which is when your personal credit score will be necessary.
Business credit report example
Business owner credit report example
It takes time to build up a business and business owner credit rating, so if your business is starting out, your personal credit report may be the deciding factor when it comes to your loan application.
You'll need to take deliberate steps to build up your business and business owner credit profiles.
This can include:
- Creating a legal entity for your business
- Using separate bank accounts for business use
- Establishing trade credit accounts with some of your suppliers
- Requesting a DUNS number
- Applying for a business credit card and pay it off in full each month
How to check your business credit score?
You can check your business credit score or request a copy from one of Australia’s credit bureaus. You’re entitled to request a free copy once a year or within 90 days of being refused credit. You can also request additional copies at any time for a fee.
Alternatively, you can use one of those free services to check your credit score.
Credit Simple (illion score)
Wisr (Equifax & Experian score)
Credit Savvy (Experian score)
GetCreditScore (Equifax score)
What will you find on your credit report?
Your business credit report will include:
- Your business credit score and an assessment (i.e. which category the business falls into)
- Details of directors and shareholders
- Details of any defaults, rejected credit applications, court actions, writs of summons, judgments or bankruptcy filings against your name
- Information about any board directors who have been disqualified
Here's an example of a detailed business credit report below
What to do if your credit rating is bad?
It’s important to improve any low or below average credit score before you apply for a loan, as this can help you access a lower interest rate or save you from a rejected loan application (which could further damage your credit rating).
Be wary of credit repair services that claim they can clean up your credit record for a fee – there is generally no value in these services because they cannot remove any correct information on your file (e.g. default listings, etc) – and if there are any errors on your report, you can arrange to have them removed yourself, for free.
Here are some simple ways to improve your business credit score:
- Pay your bills on time
- Consolidate or repay loans where possible
- Reduce your credit card limits
- Pay off your credit card in full each month
- Don't apply for any more credit until your record has improved
Even if you can access bad credit finance, if your business is struggling financially, taking out a loan could push you further into financial difficulty.
Instead, you may decide to engage a financial advisor to help you get your financial management under control and boost your credit score — and to help you decide if and when is the right time to apply for business credit.