Establishing credit is an essential part of growing your business. When you begin to manage your business’s finances, and especially when you consider applying for a business loan, you’ll likely come across something called the Dun & Bradstreet Paydex score. You might ask yourself, “What is a Paydex score?” (Or even, “Who are Dun & Bradstreet?”) These are valid questions—and more important than you might initially think.
Here’s a quick article on what is a Paydex score, what is a good Paydex score, how to check your Paydex score, and why it’s so important for business owners to understand (and keep track of) this information.
What is a Paydex
Simply put, a Paydex score is a credit score for businesses. These scores are generated by Dun & Bradstreet (D&B). And unlike personal credit scores, which range from 300 to 850, D&B calculates Paydex scores on a range from 1 to 100.
Paydex scores do operate much like FICO scores, but there are some key differences. Instead of considering your personal credit history, your Paydex score determines your business’s creditworthiness.
Why Your Paydex Score Matters
Often, lenders, vendors, suppliers, and potential business partners reference your Paydex score before agreeing to work with you, as this score indicates how reliably you meet your debt agreements and your overall financial stability.
Just like banks review your personal credit for purchases, businesses with healthier Paydex scores are more likely to be approved for financing, and for better terms for their business funding—which we mean higher loan amounts, longer repayment terms, and lower interest rates.
How Your Dun & Bradstreet Paydex Score Is Calculated
The Paydex score ranges from 1-100, with 1 being the worst and 100 being the best. The higher the number, the more likely the business is to pay their bills on time or early. Though your entire payment history is on your Dun & Bradstreet file, only your payment history for the last two years is calculated to make up the Paydex score.
Unlike the individual FICO credit score, which takes many factors into consideration, the Paydex score only calculates one factor: timely payments based on terms agreed upon between a business and a vendor. That’s it!
The Paydex score is “dollar-weighted,” meaning that each vendor is weighted in terms of the number of transactions and the overall dollar value of those transactions. In other words, vendors with whom you spend the most money and work with most frequently will be weighted higher in your score than less expensive vendors or suppliers you use less frequently.
What Is a Good Paydex Score?
As a reminder, your Paydex score is between 1 and 100. Businesses with the highest Paydex scores are considered more likely to repay their debts on time, based on their track records repaying vendors and suppliers.
Generally, a score of 80 means that a business has paid its bills on time. Anything higher than that means the business consistently pays their bills early. Businesses with scores between 80-100 are considered at very low risk of late payment. And 50-79 is considered a medium risk, and anything lower than 50 is considered a high risk of late payment.
If you can keep your business in the 80-100 range, you’re in excellent shape.
Track Business Credit with D&B
Although building business credit can be as simple as paying your bills on time (or early), it’s always best to track your scores as they grow.
Not only should you monitor your business credit scores monthly, but doing so is also a great way to get a business tradeline reporting to your business credit file.
Here are a few other ways you can improve your Paydex score:
Open up tradeline business accounts: Tradeline accounts are basically credit accounts you can open with suppliers or vendors. They are typically net-30 accounts that require full payment within 30 days.
Open a business credit card: Keep your credit active by using a business credit card. Use the card only for business purchases, and pay it off monthly to keep your credit utilization ratio low. Note that this card should be in your company name, not your personal name. This will generally require good personal credit of 720 and above. Start working on your personal credit immediately if you’re not there yet.
Avoid opening too many credit products: Applying for too many credit cards or loans within a short period of time can actually hurt your Paydex score, as most lenders make hard credit inquiries into your score when you apply.
Keep checking your Paydex score: Regularly monitor your Paydex score from D&B. Make sure it’s complete and up to date with all current and accurate transactions. If you notice a discrepancy or mysterious activity on your credit report, contact D&B directly to clear it up
The Bottom Line
Even if you’re not yet in a position to seek business funding, it’s likely that you will at some point down the line.
With a strong Paydex score, you’ll simply have more options available to you as a business owner—and with more options comes more opportunities for growth. Something every business owner is shooting for.
And if you need a head-start, pick up a copy of our Business Accelerator Program. It’s the next best step towards building business credit fast with guided training and proven steps.