Insights on building business credit

Managing your business

In Truist’s 2023 survey of 518 small business owners (Truist's 2023 Small Business Survey), small businesses reported looking externally for help in funding their businesses.Disclosure 1 Besides tapping into cash on hand, 38% of owners plan to use business credit cards, 16% plan to access business loans or lines of credit, and 11% are looking for equipment or auto financing to meet their funding needs.

“Your business credit scores can have a substantial impact on your credit and the cost of borrowing as well as on your relationships with your suppliers and customers,” said Zachary Sink, small business lending product manager at Truist. “It’s a good idea to understand how business credit reporting works and what your scores mean.”

Understand the importance of business credit scores and ratings.

What are business credit scores? Your personal credit score reflects a combination of factors, such as your payment history, the number and type of credit accounts, the amount of credit you’ve used and how well you’ve used it, and the length of your credit history. Your business credit is based on the history of similar factors for your business. The following table shows some of the differences between personal credit scores and commonly used business credit ratings.

Personal credit vs. Business credit
Personal credit Business credit
Applicant ID Social Security Number of individual (SSN) Employer Identification number (or EIN) of business
Scores and ratings A score between 300-850 Multiple ratings and scores based on payment timeliness, credit risk, supplier risk, failure risk, financial and non-financial account performance, and other factors
Credit report, score, and ratings providers Transunion Equifax Experian LexisNexis Dun and Bradstreet Experian Business Equifax Business Small Business Financial Exchange
Access Private, only the individual can access or grant access Can be accessed from score providers (usually for a fee)

When a business first opens, it starts without a credit history; this can make it more challenging for startups to get loans or credit cards. Timely payment performance and responsible use of credit products can make a business more attractive for suppliers extending trade credit terms or for lenders considering small businesses for financing offers.

How are business credit scores used?

Business credit ratings and scores can be used by trading partners, lenders, customers, and investors—anyone who’s interested in the viability of your business and whether to lend to or trade with you.

When you apply for a loan or credit, lenders may use your credit score in determining your “creditworthiness”—that is typically a representation of the lender’s belief in your ability to repay a loan or credit on time and in full. If you have a higher score, you’re generally considered to be more “creditworthy.” Although business credit scores are just one of the components that lenders consider when reviewing loan applications, your credit score usually weighs in their decision to approve or deny your loan.

“The strength of your business credit score not only impacts loan approval decisions, but it can also affect your loan amount and the interest rate that you are charged,” said Sink.

Business credit scores are also often used in determining trade credit. With trade credit, a supplier lets you purchase goods on credit and requires payment within some agreed-upon payment period. Suppliers are generally more likely to extend trade credit to businesses with good credit scores.

Business credit scores are determined by several factors. Three primary drivers include:

  1. Credit history: Like your personal credit score, business credit bureaus review your payment patterns, outstanding balances, and credit utilization ratio. They also look at your business’s debt and debt usage.
  2. Firmographic details: Credit bureaus consider specific details about your business, including how long you’ve been in business and the number of employees you have.
  3. Public records: Bankruptcies, judgments, and liens—all of which are public information—may be considered as part of your business’ credit score.

How can I monitor and track my business credit?

Unlike personal credit scores, business credit scores are publicly available; but there is a cost to access them. A low score can reflect poorly on your business; this can cause suppliers, investors, partners, and even customers to be cautious about doing business with you. Regularly monitoring your business credit scores (e.g., at least annually) can help you stay aware of any changes or other impacts that might require your attention.

Consumer credit reporting agencies like Experian and Equifax can also produce business credit reports. Dun & Bradstreet focuses on business credit reporting with multiple scores that address different aspects of your business. Those include: (1) PAYDEX business credit score (measures past payment performance), (2) Delinquency Predictor Score (measures the likelihood of late payments, bankruptcy, and future payment failure), and (3) Supplier Evaluation Risk (predicts the chance a supplier will become inactive or shut down in the next 12 months.Disclosure 2

The Small Business Administration (SBA) has developed a business credit score specifically for small businesses called the FICO® LiquidCredit® Small Business Scoring Service and is calculated during the lending application process. This type of business credit score is between 0 and 300. The SBA requires lenders to use this score when the prospect applies for an SBA 7(a) loan.

Taking care of your business credit

While there are many factors that go into how your business’s credit is evaluated, paying attention to financial activities of your business that you can control can’t hurt when you’re looking to build your business’s credit.

  1. Develop good financial habits. Consistently paying your bills on time and in full are keys to building a positive credit history. Lenders will also often look to determine whether a prospect is over-relying on credit.
  2. Consider getting (and using) a business credit card. Business credit cards can help you manage cash flow, track spending, and increase your purchasing power. Within the Small Business credit card market, you can find a variety of cards that offer rewards like cash back or travel miles, as well as benefits like protection against unauthorized purchases. Regardless of the business credit card you choose, you’ll need to use your business credit card consistently and responsibly.
  3. Establish trade lines with your suppliers. Making timely payments to suppliers can demonstrate your organization’s ability to handle credit responsibly.

Keep your options open by building your business credit score.

Build your business and your business credit score. Talk to a small business banker at 877-279-3083, schedule time for an in-person or virtual appointment, or visit Truist small business to find out how Truist can help.

This content does not constitute legal, tax, accounting, financial, or investment advice. You’re encouraged to consult with competent legal, tax, accounting, financial, or investment professionals based on your specific circumstances. We don’t make any warranties as to accuracy or completeness of this information. We don’t endorse any third-party companies, products, or services described here. And we take no liability for your use of this information.