The Factors That Influence Business Credit Scores

The Factors That Influence Business Credit Scores

The Factors That Influence Business Credit Scores

While you’re hard at work in your business, credit bureaus are also working behind the scenes to compile credit reports that can help (or hurt) your business for months or years to come. 

Suppliers may review your business credit profile to decide whether to do business with your company, or offer payment terms like net-30 terms. Small business lenders may use these reports and scores to decide whether to offer financing, and what interest rate to charge. And other businesses may use your business credit to size your business up as a vendor or for a potential partnership.

Strong business credit opens doors and gives your business more options. 

If you’re like most business owners, though, you may still not fully understand what is business credit; and more specifically what factors go into business credit scores. Find out here.  

What Is Business Credit Score Based On?

Credit bureaus and companies like FICO or VantageScore create credit scoring models. Each is designed to predict something specific related to creditworthiness; for example, a credit score may predict the risk of a business going bankrupt in the next year. 

The company creating the credit scoring model will analyze business credit reports to find factors associated with that type of behavior. They will use that to create a model that helps predict the type of risk it’s created for. 

Every credit scoring model can be slightly different, then, depending on its purpose. 

Additionally, a credit scoring model needs information from a credit report to analyze. In the case of business credit, a credit report will be compiled by a commercial credit bureau like Experian Business, Equifax or Dun & Bradstreet. 

Consumer credit reports are compiled by Equifax, Experian and Transunion. 

Experian reports may contain different information than, say Equifax reports, because they may have relationships with different vendors, suppliers or lenders that report. It’s even possible that Yelp and Google reviews can impact your business credit score, because there is a model built to analyze business social media. 

How Does FICO Affect Your Business Credit? 

FICO creates credit scores but it is not a credit bureau. Instead, FICO credit scoring models are used to analyze credit reports from various credit bureaus. The FICO SBSS score is a credit scoring model developed specifically for small business decisions.

This score can take into account data from several sources: consumer credit reports for the principals of the business (up to five owners), business credit reports,  information supplied on the application and/or business financials. It is used by banks, and is an integral part of the approval process for some SBA loans. 

Another twist: Some credit scores will take into account information collected by the Small Business Financial Exchange rather than the bureaus themselves. 

Which Factors Have the Most Effect on the Company’s Credit Rating?

Here are the main business credit score factors that can help your business establish and maintain good business credit: 

1. Payment history

Without question, the number one factor that will affect your business credit scores is your payment history. 

Does your business pay accounts on time? And if it doesn’t, how many late payments does your credit report list? How recent are they? And how late do you typically pay?

Business credit is different from personal credit in that payment history does not fall into 30-day buckets. Instead, these reports use Days Beyond Terms, or DBT, to track payment history.

Pay 2 days beyond the due date and your payment history is 2 DBT, for example. 

On-time payments help your business build business credit, but it’s worth noting that not all accounts your business pays will appear on your business credit reports. Lenders or suppliers may report to business credit, but it’s completely optional to do so. Some do, and others don’t. And a few only report negative information. 

Only accounts that appear on your business credit will help you build your business credit ratings. That’s why it’s important to seek out tradelines and loans that report to build credit references on your credit reports. 

It’s possible to have a low credit score because you don’t have many accounts appearing on your business credit reports. If you’re new to business credit, here’s how to establish business credit for the first time. 

2. Negative information

Collection accounts can hurt your credit scores, whether we’re talking about personal credit or business credit. Public record information can also hurt your credit scores. If your business has been sued or a judgment has been filed against it, that will affect your scores or how lenders view your business from a credit risk standpoint.

Bankruptcy is negative as well. Tax liens are another item that can bring down your scores; paying your business taxes on time is important in  more ways than one.

3. Use of credit and debt

Business credit scoring models may evaluate your use of credit in different ways. Some may look at the balances reported, while others may look at your credit utilization— balances compared to credit limits or available credit. 

It’s fine to use credit; however, this factor can hurt your scores if your business takes on a lot of debt (especially in the last few months) or regularly carries high balances on lines of credit or revolving accounts. 

4. Types and mix of credit

What types of credit accounts do your business credit reports list? 

Supplier or vendor accounts? Business credit cards? Business credit line? Equipment leases? Commercial real estate? All of these can be valuable credit references when reported to business credit with a track record of on-time payments.  

While you don’t want to get too much credit too quickly, you do want to make sure you have a well-rounded credit report with at least some different types of accounts. Good business credit scores are often associated with a mix of different types of credit. 

5. Age of business and age of credit

Many businesses don’t make it past the one or two-year mark. One of the factors that credit scoring models and lenders will take into account is how long the business has been established.

Make sure you have an official start date for your business and use it consistently when applying for credit. If you formed a business entity like an LLC or corporation, you’ll have a clear date that establishes when the business entity was created. 

If you operate as a sole proprietorship, you will need to establish that start date in other ways, such as getting an EIN or a business license. Another way to establish that start date is to file a DBA or fictitious name with your state.

6. UCC filings

A UCC filing or UCC lien is a legal notice that creditors file in state courts to publicly protect their interest in property. Some lenders won’t lend to businesses with too many outstanding UCC filings, as that leaves them with limited options if the borrower doesn’t repay the debt. 

But creditors don’t always promptly file releases when debts secured by UCC filings are paid. Pay close attention to this information on your credit reports to make sure it’s correct. Here’s how to remove a UCC filing

7. New credit and inquiries

Some business credit scoring models consider credit inquiries and/or new credit accounts. (A hard inquiry is created when you apply for credit). Do inquiries impact your business credit scores? They may, depending on the business credit report and scoring model used. 

Lots of new credit applications or credit accounts can be associated with higher risk. There can be a lag between when you apply for credit as a business owner, and when any account you get is reported—if it’s reported at all—and that can also have an impact on this factor. 

Again, that doesn’t mean you shouldn’t apply for credit when you need it, but be strategic and smart about it. Apply where you’re more likely to be approved and avoid unnecessary inquiries. 

8. Industry risk

The industry in which your business operates is usually noted by an SIC or NAICS code. Within credit scoring models, your business may be compared to others in the same industry. In addition, some businesses are considered higher risk than others. While you can’t necessarily change the industry in which you operate, you can check to make sure you’re using the correct NAICS or SIC code. 

These low risk industries tend to get more funding.

How Can I Improve My Company’s Business Credit Score?

Before you can improve your business credit score, you need to know what your business credit reports say about your business. 

You’ll want to check your business credit reports with major business credit bureaus. Take a careful look at what accounts appear on your reports and whether that information is accurate and up to date.

What you’ll need to do to improve your business credit scores depends on what’s impacting your scores.

If you don’t have many accounts listed on your credit reports, you may need to add new tradelines. These accounts, paid on time, may help you establish business credit and 

Learn more in The Ultimate Business Credit Ratings Guide

Nav Business Credit Guides & Factor Details

How can you put what you’ve learned here into practice? These three steps can help you get started today.

1. Get your Detailed Credit Reports from Nav

Nav offers the most comprehensive source of business and personal credit information for small business owners. See what lenders are seeing, and take action. 

Nav Prime provides Detailed Credit Reports from business credit reporting agencies Equifax and Experian. Personal credit scores and reports are provided by Experian and Transunion.*

2. Use Nav Prime to build your credit history 

Your Nav Prime payments are submitted monthly to major business credit bureaus to help you build your business credit history. 

Nav members who used Nav’s Detailed Credit Reports with tradeline reporting saw an increased business credit scores up to 50% in the first 3 months.***

And the majority of customers that use Nav tradeline reporting at least 6 months continue to see positive business credit score changes****

3. Monitor and manage your business credit

With Nav Prime you can monitor your progress. You’ll see how your personal and business and credit changes over time and how your actions influence scores. Get real-time alerts to act on what’s holding your business back from new opportunities. 

Maintain good business credit by paying on time, managing cash flow, and applying for small business loans and financing you’re most qualified for. 

*Nav provides access to Experian™ Intelliscore PlusSM V2, Equifax® Business Delinquency Score®, TransUnion®VantageScore® 3.0, and Experian™ VantageScore® 3.0. VantageScore is a registered trademark of VantageScore, LLC.

***Based on aggregate data tracking Experian® Intelliscore Plus business credit scores after three months of having Nav tradeline reporting. Results will vary. Scores are calculated from many variables; some users may not see improved scores.

****Based upon the aggregate percentage of Nav customers with positive score changes, nearly 70% of customers continue to see positive business credit score changes across business credit bureaus by keeping their Nav tradeline at least a year.

This article was originally written on April 23, 2024 and updated on May 20, 2024.

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