You are probably familiar with a FICO score and how important it is to stay on top of your credit. You may not be as familiar with a PAYDEX score or what it means for your business. A PAYDEX score can affect your chances of getting the best rates from your creditors. The score rates the likelihood that a business will make payments to suppliers/vendors in a timely manner. We will dive deeper into what a PAYDEX score is and how they affect the credit of your company.
What Is a PAYDEX Score?
To put it simply, a PAYDEX score is a business credit score. This score is generated by Dun & Bradstreet (D&B). FICO credit scores range from 300 to 850 but PAYDEX scores range from 1 to 100. A high number means that the business has paid its debt on time. Lenders and vendors may use your PAYDEX score to determine if you are eligible for a loan and what kind of interest rate and repayment terms, they should provide you.
Just like how understanding your FICO score is crucial, understanding where you fall in the PAYDEX score range is crucial as well. The better your score is, the easier it will be to find affordable funding for your business.
What Is a Good PAYDEX Score?
A low risk business has a PAYDEX score in the 80 to 100 range. A score of 50 to 79 indicates moderate risk of late payment and a score of 1 to 49 indicates a high risk of late payment. The longer you take to pay your bills, the lower your score will be.
How to Increase Your PAYDEX Score
Fortunately, there are a few steps to take on how to increase your PAYDEX score.
- Pay Your Bills Early: aim to pay bills on time but it will be even better if you pay your bills early. Paying early can have a significant impact on your PAYDEX score.
- Open Up Tradeline Business Accounts: opening and paying off tradeline accounts with your suppliers and vendors affects your credit rating in a positive way.
- Open a Business Credit Card: keep your credit active by opening a busines credit card. Use the card for business purchases and pay it each month so you keep your credit utilization score low.
- Ask Suppliers to Report to Dun & Bradstreet: to calculate your PAYDEX score, Dun & Bradstreet needs to receive your vendor reports of your payments. Some vendors do not report this so it is important to talk to them and ask if they can report your payments to them.
- Monitor Your Account Regularly: be sure to monitor account so you can report any errors or mistakes. You can sign up for free PAYDEX score change alerts so you can track your account.
- Keep Credit Active: keep your credit lines active to maintain a high PAYDEX score. If you do not keep it active, your score may decrease.
How Your PAYDEX Score is Calculated
Dun & Bradstreet gathers data from suppliers and vendors with which you do business over one year. This is different than your FICO score because it does not take your credit history into account nor your history with lenders. Your FICO score does not affect your PAYDEX score, however, personal purchases made on your business account that are not paid on time will affect your score so it is important to separate your personal finances from your business finances.
Dun & Bradstreet uses how long it takes you to pay off your debts to calculate your score. The score is dollar-weighted meaning that each payment experience is weighted in terms of the number of transactions and their dollar value.
Why Your PAYDEX Score Matters
Lenders look at your score to determine financing opportunities for your business. Additionally, vendors, suppliers, and potential business partners look at your PAYDEX score before agreeing to work with you because it lets them know how financially stable you are. Having a favorable score means you will have higher loan amounts, longer repayment terms, and lower interest rates. It can also put you in a better position when negotiating better terms with your lender.
The Bottom Line
As you can see, your PAYDEX score play a huge role in your business in many ways. Even if you are not currently seeking funding at the moment, you most likely will down the line. Lenders look at both your PAYDEX score and your FICO score to determine if you are eligible or not for additional funding. By having a strong score, you will have more options available to help grow our business.