Being a company director comes with a lot of responsibilities, including managing the financial affairs of the company. One of the most important aspects of financial management is having a good credit score. A company director’s credit score can affect the company’s ability to secure financing, obtain credit, and even win new business partnerships or contracts.
A survey by the National Association of Credit Management found that 61% of credit professionals believe a company director’s personal credit score is somewhat or very important when evaluating a company’s creditworthiness. This article aims to explain how a company director’s credit score affects a business, as well as what to do if your director has poor credit.
Why is a good credit score important for company directors?
A good credit score is important for company directors because it helps demonstrate their financial responsibility and trustworthiness. Lenders, investors, and other stakeholders may look at a company director’s personal credit score when evaluating the company’s financial stability before deciding whether or not to invest in the company.
In addition to getting access to funding, whether it is through angel investors, VC or installment loans for bad credit – having a good credit score is often very important to get approved for a senior position or to get an FCA or SEC licence, which is imperative to set up or run a regulated business.
How can a company director check their credit score?
Company directors can check their credit score by requesting a credit report from one of the major credit reporting agencies, such as Equifax, Experian, or TransUnion, or by using online credit monitoring services or credit score apps.
What is considered a good credit score for company directors?
A good credit score for company directors is typically 700 or above on a scale of 300 to 850. However, the specific credit score requirements will vary depending on the lender or creditor and the type of financing or credit.
What can company directors do to improve their credit score?
Company directors can improve their credit score by keeping on top of the following:
- Paying bills on time
- Keeping credit card balances low
- Avoiding opening too many new credit accounts at once
- Working with a credit counsellor or financial advisor to develop a plan to improve their credit score moving forwards
Can a company director be denied financing or credit due to a poor personal credit score?
Yes, a company director can be denied financing or credit due to a poor personal credit score. Lenders and creditors may view a company director’s poor credit score as an indication of their inability to manage their finances effectively. This can lead to company directors being labelled as high risk for defaulting on loans or credit.
Investors and creditors are less likely to make risky investments in companies whose directors are seen as high risk. This can make it harder for the company to obtain financing or credit, or result in higher interest rates or unfavourable terms.
Are there any alternatives for company directors with poor credit scores to obtain financing or credit?
Yes, there are alternative financing options available for company directors with poor credit scores. Here are some options to consider:
- Consider applying for secured loans that require collateral, such as a property or vehicle.
- Seek out alternative lenders that specialise in working with borrowers with poor credit, but note that these lenders may charge higher interest rates or have stricter repayment terms.
- Ask friends and family for loans, or crowdfund the money needed.
Can a company director’s credit score affect their ability to secure insurance for their business?
Yes, a company director’s personal credit score may affect their ability to secure insurance for their business. Insurance companies may view a company director’s credit score as an indicator of their financial stability or competence. This information will likely be used to assess the risk of insuring the business. A poor credit score may result in higher premiums or even denial of coverage in some cases.
