Why Business Credit Scores Matter — and How to Improve Them

Building financial credibility can be a ticket to growth and opportunity for small business managers and entrepreneurs. Enter the business credit score — a metric that, when high enough, can open doors to new opportunities. Whether you’re eyeing a new line of credit, negotiating better terms with suppliers, or keeping your business’s reputation solid, your business credit score is your financial report card.

What is a business credit score, and how does it affect your operations? Here’s a jargon-free breakdown.

What is a Business Credit Score?

Think of a business credit score as a shorthand assessment of your company’s financial trustworthiness. This number, which typically ranges from 0 to 100, tells lenders, suppliers, and insurers how likely your business is to pay its debts on time.

A higher score can be the golden ticket to lower interest rates, better vendor terms, and even reduced insurance premiums. A low score, on the other hand, can mean higher costs and fewer opportunities knocking on your door.

How is a Business Credit Score Calculated?

Just like your personal credit score, business credit scores are calculated using several factors, including:

• Payment history: Late payments can damage your score faster than you can say “overdue invoice.”
• Credit utilization: Keeping balances low compared to your credit limit reflects responsible borrowing.
• Length of credit history: The longer you’ve managed credit accounts effectively,  the better it reflects on your score.
• Public records: Legal troubles, bankruptcies, or liens can affect your score.
• Company size and industry risk: Larger companies or those in stable industries often fare better.

Now, who keeps track of all this? Dun & Bradstreet, Experian, and Equifax are the companies behind credit score data. Each operates a bit differently:

• Dun & Bradstreet creates your D-U-N-S Number, a unique identifier linked to your business credit profile. Its PAYDEX Score focuses heavily on payment performance.
• Experian evaluates payment history, public records, and credit utilization to generate a straightforward numerical score.
• Equifax dives deeper into financial details, incorporating loan balances, credit history, and even the risk of business failure into its scoring model.

Because these agencies have distinct methodologies, your score may vary depending on which one is used.

Why Does Your Business Credit Score Matter?

If you’ve ever struggled with high-interest loans or stiff payment terms, your credit score was likely the culprit. Here’s why it matters.

• Financing: Banks and lenders base their decisions — and terms — on your credit score. A strong score means better rates and access to more extensive credit lines.
• Supplier relationships: Suppliers often check your score before agreeing to flexible terms or discounts.
• Insurance premiums: Insurers may use your score to calculate premiums, so a higher score could mean lower costs.
• Partnership opportunities: A solid credit score signals reliability and financial stability, which can make your business a more attractive partner.

5 Tips to Improve Your Business Credit Score

Here’s the good news: You’re not stuck with your current score. Like any grade, it can be improved. Use these strategies.

• Pay on time: Seriously, even one late payment can harm your credit score.
• Keep credit utilization low: Aim to use less than 30% of your available credit.
• Check your credit reports: Errors happen, and they can cost you. Regularly review your reports for inaccuracies and dispute them promptly.
• Diversify your credit: A mix of revolving credit (like business credit cards) and installment loans shows lenders you can manage various forms of debt.
• Build a long credit history: Stick with your credit accounts to show stability. Closing older accounts can hurt your score.

How Expense Management Supports a Strong Business Credit Score

Effective expense management is a key driver of a healthy business credit score. Here are some key benefits.

Timely Payments

With automated recurring payments and expense tracking, businesses can make sure suppliers are paid on time, which directly impacts their business credit score. 

Improved Cash Flow

Detailed expense tracking prevents overspending, which helps ensure businesses have enough cash to cover financial obligations without resorting to excessive credit.

Error Detection

With enhanced visibility into expenses and real-time tracking and reporting, it’s easier to catch discrepancies or errors that could affect financial standing, like overcharges or duplicate invoices. 

Enhanced Credibility

Organized expense management reflects positively on financial stability, potentially strengthening relationships with creditors and boosting the business’s reputation.

Expense Management and Modern Tools: A Winning Combo for Your Credit Score

Managing your business credit score goes beyond avoiding late payments — it’s about adopting a holistic approach to financial health. Effective expense management paired with tools like Navan can streamline the process and provide real-time insights to track expenses and optimize budgets.

Your credit score signals financial potential. With modern tools and smart management, you can build vendor trust and drive business growth. Explore Navan today to start your journey.