Business Loans

What Is a Paydex Score?

As a small business owner, when it comes to applying for small business loans, credit cards, leases and more, your personal credit often runs the show. That might seem strange, but most lenders believe that your personal credit history is the best sign of how well you will handle your business’s debt and expenses.

Most people are aware of their personal credit score—the three-digit FICO number between 300 and 850 that indicates whether your credit history is poor, fair, good or exceptional. But there is a business credit score, too. And though business credit scores aren’t talked about nearly as much, they’re used to make important decisions about your company.

One of those business credit scores is the Paydex score from Dun and Bradstreet, a business services company that provides commercial credit history data to businesses.

What is a Paydex score?

Similar to a FICO score, the Paydex score is designed to show how creditworthy your business is. In this case, the score considers how quickly you pay your vendors and suppliers, information that Dun and Bradstreet collects from those companies.

A Paydex score ranges between 0 and 100. A higher score indicates better payment history. Ideally, your business would have a score of 80 or above. A score of 80 means you pay your business’s bills exactly on time. A score above that means your business pays some of its bills early. Whether you pay your business’s bills late, early or on time is based on the terms you agreed to with your supplier or vendor. Here is a breakdown of the Paydex score ranges:

  • 80-100: Low risk of late payment (payment averages from on time to 30 days early)
  • 50-79: Medium risk of late payment (payment averages 30 days or less late)
  • 0-49: High risk of late payment (payment averages 30 to 120 days late)

Dun and Bradstreet isn’t the only company that provides business credit scores. Experian, one of the three major credit reporting bureaus, has the Intelliscore Plus Credit Score, and FICO has the FICO SBSS (small business scoring system).

Experian Intelliscore Plus Credit Score: Intelliscore Plus assigns businesses a credit risk score from 1 to 100 – higher is better – that is designed to predict how likely a serious payment delinquency would occur in the next 12 months. The scores are broken into ranges that are classified by a risk class from 1 to 5, with 1 as low risk and 5 as high risk. Experian uses over 800 variables to calculate these scores, including collection information, recent credit inquiries, financial ratios and public filings for both the business and the business owner.

FICO SBSS: The FICO SBSS is actually a hybrid score of your personal and business credit information. The scores range from 0 to 300, with most lenders looking for a score of at least 160. The Small Business Administration (SBA) uses the FICO SBSS for its mandatory pre-screening for its popular 7(a) loan program. The Dun and Bradstreet Paydex score is among the information used to calculate your FICO SBSS score.

Where can you find your score?

Just as it’s a good idea to check on your personal credit score at least once a year, you should also look at your business credit score. To find out your Paydex score, you need to apply for a Dun and Bradstreet D-U-N-S number through the company’s website.

Each vendor or supplier you work with is considered a tradeline account. Each payment you make to them is called a payment experience. Dun and Bradstreet generally requires four trade experiences from your tradeline accounts to calculate a Paydex score. If you don’t have a score, you might not have enough recorded payment experiences to calculate a score.

To get the score itself, you must buy a copy of your business credit report from Dun and Bradstreet. The report costs $149 a month – although you don’t have to buy it every month – or $1,499 for the year. You can also get access to your Paydex score and your Intelliscore Plus score by registering for a free account with Nav, a website that gives small business owners free access to credit reports and financing tools and education.

The importance of a Paydex score

If you’ve never heard of the Dun and Bradstreet Paydex score, you may wonder why you need to worry about it now. But just as your personal credit score can affect your chances of qualifying for a loan at a favorable rate, so too can your business credit score affect your business’s ability to get credit and at what terms.

Additionally, landlords, insurance companies and suppliers also may look at your Paydex score. The types of decisions that may be influenced by your score include:

  • Vendors or suppliers deciding if they should do business with your company
  • A landlord deciding whether or not to lease you office space
  • An insurance company deciding your premium

As mentioned earlier, your Paydex score is part of the criteria used to determine your FICO SBSS score. That’s key if you apply for an SBA loan in the future. In general, your Paydex score can help save or cost you money and may determine who is willing to do business with your company, including reputable suppliers or lenders.

How a Paydex score is calculated

So how exactly is your Paydex score calculated? Dun and Bradstreet gathers payment information from your suppliers and vendors. The Paydex score can be based on as many as 875 payment experiences.

The Paydex score compares your payment history with the payment terms you agreed to with your vendors and suppliers. For example, you could have a contract with one supplier that requires payment within 30 days and another that has a 45-day cycle. The Paydex score considers the specific terms for each agreement to determine how timely your payments are, which then determines your overall score.

The Paydex score is “dollar-weighted,” which means that more weight is given to larger payments than to smaller ones.

Tips to improve a Paydex score

The easiest way to improve your Paydex score is to start paying your bills on time, or even early. Paying off the larger bills will have a greater positive impact on your score since it’s dollar-weighted. But there are a few other steps you can take to improve your score over time:

Open tradeline business accounts. Many office supply stores like Office Depot and Quill offer accounts that require full payment within 30 days. These companies report to Dun and Bradstreet, so if you open accounts with them and pay off those accounts on time or early, you’ll build up positive business credit history.

Open a small business credit card. If you don’t have a small business credit card yet, you should open one. Using a business credit card responsibly is a great way to build your credit history. Make sure the card is in your company’s name and not your personal name. Make small purchases on the card and pay them off every month. Don’t apply for too many credit cards or other types of credit in a short time. Credit inquiries can lower your Paydex score in the same way they can lower your personal FICO score.

Take out a small loan. After six to eight months of successfully paying your tradeline and credit card accounts, consider taking out a small business loan. Do this only if your company needs the financing and you can afford it – including being able to make the full payments each month.

Keep an eye on your score. Make sure you check your Paydex score periodically. You can sign up for free alerts from Dun and Bradstreet, so you are notified when your Paydex score changes.

Encourage reporting. Adding more positive trade experiences is one of the best ways to improve your score. Ask your suppliers and vendors to report positive payment experiences with your company to Dun and Bradstreet. You can also add in missing payment experience information yourself through Dun and Bradstreett’s customer service if a vendor doesn’t report your experience with them.

Bottom line

As a small business owner, you have a lot to keep track of, but making sure you have a positive business credit history is important. A high Paydex score tells vendors and lenders that you pay your bills on time – or even early. That will make them feel more comfortable about doing business with you, which can help you maintain and grow your company.

 

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