A bad credit rating isn’t helpful in your personal finances – but did you know it can impact your business finances too? 

While your business may experience fluctuations in cash flow for a range of reasons, it’s worth ensuring you can pay your bills and debts on time to protect your credit rating. 

Here’s what you need to know about your credit rating – and what you can do to avoid a bad credit rating which could impact your business in the future. 

What is a credit rating?

At some point in your business, you may need to apply for credit with suppliers, a credit card or a loan for personal or business reasons. Your credit rating provides information to the credit provider (such as a bank or other business) about whether you’re likely to be able to manage to repay that credit. A credit rating is a way of providing this information in a way to protect your personal details and give your credit provider the information they need to assess your application.

If your business operates as a sole trader, your personal credit rating is also your business’ credit rating, as you are the entity in business.

What is a ‘bad’ credit rating?

Your credit report will include information about any debt agreements, payment defaults, bankruptcy, financial hardship and other relevant details. A credit rating can be considered “bad” if any of these details show you are not likely to be able to repay future debts, such as a loan or credit card you might apply for.

Depending on your business, your situation and the type of credit you are applying for, having trouble paying one type of credit can impact the likelihood of getting further credit.

Changes in credit scores can significantly affect business operations. For instance, when one business experienced a shift in its credit rating, its suppliers became aware and reevaluated their terms. Consequently, they moved the business to a cash on delivery (COD) payment arrangement, which had an immediate impact on the cash flow of that business.

How to avoid a bad credit rating

There are a few simple things you can do to protect your credit rating, both in personal and business terms:

Know your rating

You can access your credit report through a credit reporting body throughout the year.

Pay your bills on time

Whether it’s your utility bills, personal credit card debt or supplier invoices, it’s important to keep your bills paid and up to date. If you think a payment might be late, take action and contact the biller sooner rather than later. You may be able to arrange a payment extension or payment plan to stay on top of your debts.

Manage your debts

Review your business and personal debts regularly and try to only borrow what you can comfortably afford to pay back. 


If you do find issues with your credit score, try to take action as soon as possible to repair your credit score. Don’t pay to fix your credit report. If something is incorrect, you can have it fixed – but you can’t erase something just because you don’t want it to appear on your credit report. 

Find out more

Check the four key factors banks check before giving business loans or learn more about business finance and loans.

If you need urgent help with your finances, take a look at help for businesses in financial distress.

If you’d like to discuss an issue in your business, contact our free business advisory service to speak with a business adviser.

05 June 2024