Have you ever heard that statement before?
It’s by far the most misleading and misguided advice circulating the industry and unfortunately too many small business owners are buying into this misinformation.
In this post let’s shed some light on this very issue so you can gain a much better understanding of what to expect during the credit granting process.
First, in order to get a Paydex score your company needs at least four payment experiences reporting on your company’s Dun and Bradstreet credit file.
Now if you’re not familiar with Paydex scores it’s basically a unique dollar-weighted numerical indicator of how your company pays its bills with scores ranging from 1-100.
Similar to how lenders use personal credit scores to determine a consumer’s creditworthiness a company or lender uses a business credit scoring system like Paydex to determine a company’s creditworthiness.
Keep in mind that the Paydex score is Dun and Bradstreet’s own scoring system while Experian has its own Intelliscore and Equifax uses the Small Business Credit Risk Score.
When it comes to Paydex a score of 80+ is considered a good score and some compare it to be like having a 720 personal credit score.
While many suppliers and creditors use Paydex Scores in the credit granting process there are many other factors that they look at that fail to ever get mentioned.
- Highest Available Credit Limits
- Payment History
- Types of Accounts
- Age of Accounts
- Debt to Credit Limit Ratios
- DNB’s Credit Limit Recommendation
For example, you can have four positive trade references reporting on your DNB file with $500 being the highest credit limit on all four accounts and still score an 80 Paydex.
This is because DNB’s rating system requires a minimum of four positive trade references but if the four you have are small limits then this hardly qualifies your business to get approved for thousands of dollars of cash credit, lease credit, business loans and business lines of credit.
In addition, having your company only listed with Dun and Bradstreet is like having only one personal credit file with one credit reporting agency.
Let’s say all you have is a personal credit file listed with Equifax but have no file with Transunion or Experian. You would never be able to get approved for a mortgage because lenders do not have enough information to determine your overall creditworthiness.
This holds true for your business as well. In order to show your company’s complete credit picture you will need to have a profile established with all three major business credit reporting agencies.
So simply having an 80 Paydex score does not open the credit floodgates unless you have other positive factors listed above which ultimately play a key role in the size of the credit limits and payment terms that lenders are willing to extend to your business.
However, achieving a positive score of 80 does have its benefits and will enable your business to qualify for many net 30 and net 60 accounts with suppliers but don’t expect large credit limits until your company has proven itself with a solid payment track record as well.
Does your company have a Paydex Score, Intelliscore, and Small Business Credit Risk Score?
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for AllBusiness.com, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.