It is difficult to see the link between credit scores and business energy. They appear to be two completely unrelated topics. But once you delve a little deeper into the implications of having a poor credit score, you can begin to see why it could affect the prices you are offered by your energy supplier.
What are credit scores?
Credit scores are a quantified rating of your ‘creditworthiness’. For any individual or business who seeks to borrow money – there will be an associated rating of your trustworthiness. Credit scores are an ongoing calculation, and will be a reflection of your monetary transactions.
A good credit score shows that you have consistently paid back money on time, do not engage in risky financial situations, and are overall responsible with your own and others money. Banks will see a good credit score, and anticipate that you are likely to pay back the money loaned on-time. It is likely that they will take larger risks in offering loans – and offer access to larger sums or better rates.
Conversely – if you consistently engage in risky financial situations, enter unarranged overdrafts, have payments outstanding, or do not pay-off credit card loans, then you will end up with a poor credit score. Banks will see you as more of a risk to lend money to, and are less likely to offer provision of a loan. Those with poor credit scores are perceived as higher-risk, and less likely to fulfil the repayment terms of the loan.
Why would energy suppliers care about my credit rating?
Energy suppliers usually offer long-term energy contracts to their business customers. Credit scores are important for assessing the likelihood of a business customer defaulting on contractual payments.
In the same way that banks need to assess credit scores in order to judge how much money they are willing to lend and at what rates, so to do energy suppliers. Business energy is expensive. If a customer fails to pay for their monthly usage, then the supplier will be the one left footing the bill. On a small scale this would not necessarily be a problem but if replicated through multiple customers, the supplier will see their revenue and profits decimated.
In order to protect their own business against potential defaulted payments, energy suppliers will offer businesses and individuals with bad credit slightly higher fees and rates. Energy suppliers will be happy to provide service to these businesses, but with the stipulation of higher prices to reflect the higher risk they are taking to do so.
Is it only my credit score that matters?
Unfortunately, no. (or fortunately, depending on circumstance)
Energy suppliers will also look at a businesses Standard Industrial Classification (SIC) when calculating risk. The SIC of a company is a four-digit code used to classify different businesses according to the nature their sector.
This is a bit of a wordy explanation, but it is quite a simple concept. Some businesses will appear to be of higher risk to provide energy to than others, simply due to the type of business.
A good example is the hospitality sector. Pubs and restaurants are vulnerable to market forces, and usually have a labour-force consisting of temporary or highly mobile employees. The revenue for many of these businesses is highly variable due to fluctuating demand. Compounding this is the high-turnover of management for businesses in the hospitality.
For energy suppliers – these factors all boil down to one thing. Risk. It is a difficult process for energy suppliers to recover money for unpaid bills, so SIC ratings are used in combination to credit scores to assess suitability of service.
I have a poor credit score – how will this impact my business energy supply?
So far, we have covered why credit scores are important for energy suppliers when assessing what rates to offer a business. But what are the potential ramifications?
Those businesses with poor credit score will have limited options when it comes to choosing a supplier. If the credit score is low enough, many suppliers will simply not accept applications. This narrows down the range of options available. The remaining suppliers will then exclude poor-credit applicants from accessing their cheapest offers.
|Additional Cost Sources||Description|
|Pre-payment Meter||Suppliers may insist on a pre-payment meter to be installed at your premises. This ensures payment beforeprovision.|
|Security Deposit||An upfront lump-sum that will be returned following fulfilment of agreed contract.|
|Additional Premium||A general higher cost per-unit of energy.|
|Direct-Debit||Only accepting payment via direct-debit. Ensuring the payments are scheduled for the same time every month.|
Is there anything I am able to do about any of this?
The most important thing is to be aware. If you know that you have a poor credit score or that your business has a shaky financial history, you are already one step closer to improving your situation.
“Around 61 per cent of businesses have never checked their own credit score…”Max Firth, Experian
As credit scores are a running calculation (meaning they are continuously changing), you are able to improve your score simply by taking more control of your financial transactions. Simply checking the credit-score for your business immediately puts you in a better position than the 61% of businesses. By knowing what side of the fence you sit on will allow for steps to be taken to either improve or maintain your score.
Below is a table of things that can affect your credit score. This should go a long way in helping forming credit-boosting habits!
|Credit Boosters||Credit Busters||Myths|
|Borrowing what you can afford – and if you use credit, ensure you can comfortably meet the repayments.||Frequently setting up new accounts.||Previous occupants of your home address do not affect your credit score.|
|Utilising direct debits for regular payments.||Constantly being at your credit limit.||Friends and family that you live with do not affect your credit score unless you are directly financially linked.|
|Pay off any credit if possible.||Frequently applying for credit.||Incredibly distant credit history does not affect your credit score. 6 years is the usual credit window that companies will look at.|
|Try to focus on maintaining older, well-managed accounts.||Missing payments. This is a big one.||Checking your credit score too often does not affect your credit score.|
|Register to vote at your current address.||Borrowing more than you can afford.||Comparing credit scores and searching for credit cards does not affect your credit score.|
|Check your credit score for accuracy – and pull up any mistakes.|
|Protect yourself against fraud.|
I can’t afford to wait for my credit score to change! Is there anyone who can help?
You have already found them!
At Energy Solutions, we are well-versed in helping customers with a wide variety of problems. Helping businesses with poor credit to a fair energy contract? Not a problem.
If you are currently paying way over the odds for your business energy, or are worried about your next renewal, or even if you just want a reassuring chat – you can call us on 0131 610 1688
We know how important finding the right energy supplier for your business needs can be. We offer speciality energy procurement services for our customers – and will present you with all of the options open to your business. The final decision rests with you, we just do all the hard work!
Alternatively, you are able to contact us online here by using our online enquiry web form. The rest of our contact information is available online on the same page too.
Who are the main credit agencies in the UK?
There are four credit agencies in the UK who report both public and credit-related information about individuals. We have included some of their contact information to help you find the best suited for your needs!
|Agency Name||Website||Phone Number|
|Experian||Experian||0344 481 0800||@Experian_UK||ExperianUKfirstname.lastname@example.org|
|Equifax||Equifax||08000 850 650||@EquifaxUK||@Equifaxemail@example.com|
|Crediva||Crediva||029 2005 4271||N/A||N/Afirstname.lastname@example.org|
|TransUnion||TransUnion||0330 024 7574||@TransUnionUK||N/Aemail@example.com|
Do energy Companies do credit checks?
Yes – energy companies will assess credit scores when offering terms to both individuals, and businesses.
What is a good credit rating for a business?
There is no set number that is considered to be “good” – but a score of 50+ should be considered a minimum, and 80+ a good target to aim for.
Can I check my business credit score?
Yes – there are many free and paid services for anybody who would like to check their business credit score. A simple google search will return plenty of results for providers of this service.
Can I check my personal credit score?
Yes – similarly to checking your business credit score there is a multitude of free or paid services to choose from. A simple google search should return plenty of results to pick from.
Can a utility company deny you service?
Although it does not happen often – yes. This is not something that will happen without good cause, and is often as a result of previous actions. If you owe money for a similar service with another account or at a different address then sometimes you will be denied service.