What is a PAYDEX Business Credit Score and How Do I Improve Mine?
Just as credit scores are important for individuals, they are also important for businesses. In this article, we’ll explain the Paydex score algorithm and how you can improve or maintain your business’s Paydex score, a number that indicates how well your Florida business has paid invoices on time. The score ranges from 0 to 100, with 100 being the best. A Paydex score of 80 or above is considered excellent. If you're a Florida business owner, then you know that one of the most important things to maintain is a good credit score. Your business credit score, similar to your personal credit score, not only affects your ability to get loans and lines of credit, but also impacts your insurance rates and even your business's reputation. Keep reading to learn more!
What is a Paydex Score?
Created by business data and analytics company Dun & Bradstreet, the Paydex Score measures a business’s past payment performance on a scale of 1 to 100. A score of 80+ indicates a low risk to lenders, which could make it easier for your business to get approved for a commercial loan or line of credit.
How is a Paydex score used?
Commercial landlords, business lenders, and suppliers may check your Paydex Score before deciding whether or not to lease a business space to you, approve your business loan or credit card application, or to set invoice terms based on your past payment history.
As a business owner, you may also need to submit to a personal credit check, especially if your business is newer and doesn’t have much of an established payment history yet. It’s best to keep your personal and business finances separate as much as possible, but you still want to maintain a good personal credit score.
How to get a Paydex Score
Your Paydex Score reflects the level of risk a lender, vendor, or commercial landlord would take on by doing business with your company. An 80 Paydex Score or higher is ideal. Your score is calculated using your business’s payment history (how often do you pay your invoices early or on-time?) and operational information, as reported on your business credit report.
To get a Paydex score, you need to sign up for a D-U-N-S Number for your business. This establishes a D&B file on your business. The first step in creating a new D-U-N-S Number is searching to see whether Dun & Bradstreet has already created one for you.
To monitor your Paydex Score before applying for a business loan in Florida, you can sign up for Dun & Bradstreet’s CreditBuilder™ Plus tool ($149/month). You’ll be able to view your max credit recommendation, current Paydex Score, risk of delinquency, financial stress percentile, payment status history, and more.
You can also purchase a stand-alone business credit report to check your business’s current standing before applying for a new lease or business loan. Finally, Dun & Bradstreet offers a free tool, CreditSignal®, that alerts you to changes and events in your business credit file and give you access to your business credit scores and ratings for two weeks.
Why is a Paydex score important for my Florida business?
The Paydex Score is to a business what a FICO credit score is to an individual. Based on credit history, these scores communicate to lenders and others how much risk you present as a borrower. The higher your credit score for businesses or individuals, the more likely your new credit applications will be approved. A good credit score can also help you get the best possible interest rates and loan terms. So, it’s important to pay attention to your Florida business credit score so you can save money on interest and get better invoicing terms as well. This can help you manage your cash flow.
Furthermore, it’s a best practice to keep personal finances separate from your business finances. Comingling personal and business finances could negate any liability protections offered by certain business formations, such as LLCs. As your business scales from sole proprietor to an LLC or even C Corporation, a Paydex score will be helpful to establish credit terms with the vendors that make up your supply chain. Also, reporting a good Paydex score with Drummond Community Bank and other important business partners may help you achieve more competitive terms, which can be helpful with cash flow.
Tips for improving your Paydex score
So, how can you increase your Paydex score if it’s below 80? The two most important things are to pay your bills by the due date and make sure your lenders and suppliers report those on-time payments to Dun & Bradstreet. If forgetting about due dates is a problem for you, set up auto bill payments in your online banking account.
Also important, try not to use more than 30% of your total available credit limit on credit cards or lines of credit. This is the same debt utilization ratio recommended to individuals to maintain a good credit score. Using no more than 30% shows lenders that you’re financially responsible, can comfortably make monthly payments, and aren’t stretched too thin for cash.
If you don’t have much of a business credit history yet, consider opening, using, and making timely payments on a business credit card. This will help you build a credit history and record of on-time payments.