What affects your business credit score? 6 key factors

Business credit scores work differently than personal credit scores, but they serve a similar purpose: helping lenders, suppliers, and partners evaluate the financial risk of doing business with your company.

Your business credit scores are calculated using key data points from your credit reports. Payment history carries the heaviest weight, but factors like how much credit you're using, public records, and even your industry can all play a role in determining your score.

Understanding what goes into these calculations helps you understand where to focus your efforts for the biggest impact on your scores.

The main factors that impact business credit

These are the main factors that often are evaluated in business credit scores:

1. Payment history: How consistently your business pays on time.
2. Credit utilization and debt: Debt the business is carrying and/or how balances compare to available credit.
3. Age of credit history: How long your business has been established and using credit.
4. Public records: Bankruptcies, judgments, tax liens, UCC liens, and other legal filings.
5. Credit mix and types of accounts: The variety of credit accounts maintained.
6. Recent credit inquiries: How many times your business applied for credit recently.

These factors work together to create a picture of your business's financial reliability. 

That said, there are many credit scoring models, so don’t be surprised if you have different credit scores depending on which one you’re checking. 

And not all credit scoring models weigh all of these factors or weigh them the same, so it’s very possible you’ll see differences in your scores depending on the source.

Let’s review these factors in more detail: 

Payment history

Payment history is the single most important factor affecting business credit scores. Every credit scoring model considers payment history as the top factor. It evaluates whether the business pays accounts on time. 

Business credit differs from personal credit in how it tracks payment timing. Instead of using 30 - day buckets (30 days late, 60 days late, etc.) like personal credit, business credit reports use Days Beyond Terms (DBT). Pay two days after your net-30 invoice is due, and your credit report shows 2DBT.

Credit scoring models may compare the businesses’ average DBT to the average of other businesses in the same industry. 

Not all accounts you pay will appear on your business credit reports, however. Some suppliers and lenders report to business credit bureaus, but others don’t. And some only report negative information. Only accounts that actually report to the bureaus will help build your credit history.

This creates a common problem: many businesses have low credit scores not because of negative information, but because they don't have enough accounts reporting positive payment history. Seeking out tradelines and loans that report to business credit bureaus is essential for building strong scores.

Credit utilization and debt

Credit utilization calculates how much of your available credit you're using compared to your credit limits. High balances relative to credit limits can signal financial stress to lenders and can hurt your credit scores.

Business credit scoring gets tricky here because many lenders that report to business credit don't report credit limits. When limits aren't available, scoring models may use recent high balances instead, which can affect how utilization is calculated.

Total debt levels may also matter. New debt, for example, may put your business in a higher risk category. Scoring models may evaluate current balances and how those balances have changed over time.

The key here is to try to keep revolving credit balances on the lower side when possible. Consistently high balances suggest your business may be struggling with cash flow.

Credit history age

The age of your business and the age of your credit accounts can both factor into your credit scores. Many businesses don't survive their first few years, so newer businesses are often considered risky. 

One tip: Try to use a consistent official start date for your business. If you formed an LLC or corporation, that formation date establishes when your business was started. Sole proprietors can establish their start date by getting an EIN, business license, or filing a fictitious name (DBA) with their state.

The age of individual credit accounts also matters. Older accounts with positive payment history demonstrate stability and reliability over time. This is why maintaining good relationships with long-term vendors and keeping older credit accounts open can benefit your scores.

Public records

Public record information is filed with courthouses. Some of what’s recorded can significantly affect business credit scores. These files can include bankruptcies, judgments, tax liens, UCC filings, and collection accounts.

Business credit reports may retain negative public record information longer than personal credit reports. While this type of information either does not appear on personal credit reports or must be removed after seven years, business credit reports can report information indefinitely. (Read: How long does information stay on business credit reports?) 

Tax liens deserve special attention. Unpaid business taxes create liens that can appear on your credit reports and can severely impact your scores. Paying business taxes on time matters for more than just avoiding IRS penalties — it can help protect your business credit standing.

UCC filings also present a unique situation. These legal notices are designed to protect creditors' interests in collateral pledged by the business. They aren’t necessarily considered negative, but some lenders will take into account outstanding UCC filings when evaluating credit applications. Creditors don't always promptly file releases when these debts get paid off, so monitor your credit reports to ensure information about UCC filings is correct and dispute any that are not.

Credit mix and types of accounts

Having a variety of credit account types can often positively impact business credit scores. A well-rounded credit profile can include:

• Vendor or supplier accounts: Payment terms like net-30 with other businesses that report to credit bureaus
• Business credit cards: These revolving credit accounts are often reported to business credit
• Term loans: Small business loans for equipment, working capital, or expansion that are reported may be especially helpful for credit-building since loan amounts may be larger
• Lines of credit: Not only do business lines of credit offer flexible financing for managing cash flow, they can also help boost business credit
• Equipment leases: This specialized financing can add to your credit mix

You don't need every type of account, but having some variety may help boost credit scores. It depends on the scoring model, though, and which accounts appear on credit reports. Again, there is not the same level of consistency as there is with personal credit. 

And, as always, paying on time is essential. 

Recent credit inquiries

When you apply for business loans, lenders may check your personal credit and/or business credit. Inquiries may lower your credit scores, though the effect is often fairly temporary. 

With personal credit, inquiries are only reported for two years and most scoring models only consider hard inquiries in the past six months to one year. 

With business credit, there is no time limit for reporting inquiries, but generally recent inquiries are the ones that will affect your credit scores. And not all business credit scoring models factor inquiries into their calculations. The impact will vary depending on which credit bureau and scoring model a lender uses.

Try to be strategic about credit applications. Avoid unnecessary inquiries if possible. Research lenders' requirements before applying to improve your chances of approval or use a service like Nav’s small business loan marketplace to help target your options. 

What are the five C's of credit?

The five C's of credit provide a framework that lenders may use to evaluate creditworthiness. They are: 

1. Character: Your track record of repaying debts, reflected in your credit history and payment patterns
2. Capacity: Your ability to repay debt based on cash flow, income, and existing debt obligations
3. Capital:The money you've invested in your business and your available liquid assets
4. Collateral: Assets that can secure a loan and reduce the lender's risk
5. Conditions: Economic factors, industry trends, and the specific purpose of the loan

Lenders may evaluate these factors directly or indirectly along with your credit scores when making lending decisions. 

How to improve the factors that affect your business credit

Before you can improve your business credit scores, you need to know what your credit reports currently show. Get copies of your business credit reports from the major business bureaus – Dun & Bradstreet (D&B) PAYDEX® score, Equifax Business, and Experian Business, to see what accounts appear on your business credit reports, and whether that information is accurate.

Get tradelines that report

Accounts that report to business credit are called tradelines. If you don’t have several accounts that report, it’s hard to build a credit history. Consider the following types of accounts to build credit references:

• Net-30 vendors
• Business credit cards
• Nav Prime 

Nav is not a credit bureau. Scores and report data are provided by third-party sources.

Focus on payment history

Set up systems to ensure you don’t miss due dates. Use automatic payments, payment reminders, or accounting software alerts to stay on top of your bills. 

Keep credit balances manageable

Make it a goal to try to 30% or less of your available credit limits on your revolving accounts. Pay down existing balances when possible to improve your utilization ratios.

Address public record issues 

If your credit reports list outstanding judgments, tax liens, or other negative public records, try to resolve them. Paying them off may not remove them from your credit reports, but paid off accounts of these types are often viewed as less risky than unpaid ones. 

Monitor your credit regularly

Check your business credit reports at least quarterly to catch errors or changes early. Dispute inaccurate information that may bring down your scores.

With Nav Prime, you’ll be able to check, manage, and monitor your business credit with the major business credit bureaus, and your personal credit with two major consumer credit bureaus as well. 

Nav Prime includes a tradeline that may be submitted to major business credit bureaus. Reporting is subject to bureau acceptance and processing timelines, and inclusion is not guaranteed. An additional credit reference can be helpful when building your business credit history

Stick with it

Building business credit takes time. Focus on paying on time on existing accounts while strategically adding new tradelines that report to credit bureaus.

Consistent on-time payments can often steadily improve your scores over time. The businesses with the strongest credit didn't build it overnight.

Get Nav’s build business credit checklist

Frequently asked questions