In the past you’ve heard me speak, and maybe even have received information from me on a variety of business related funding products. You know how challenging it is to get capital in this mercurial economic environment, and I’ve striven to keep you informed with the most up to date info.
I understand that building positive business credit is serious, it takes time and dedication on the part of any business owner. For several years I’ve researched “Building Business Credit”. I’ve interviewed dozens of purveyors of the product. Never have I endorsed one because I didn’t want my sterling reputation tarnished. Over promise……..Under deliver…….was the typical mantra. Charging enormous up front fees and additional “points” on the back end…..They all sing the same tune. Until now……..
The three major Credit Bureaus: Equifax, Experian, and TransUnion, all work off of a similar scoring system. This system is based on a singular postulation: will you become 90 days late in the next 2 years? The scoring system they all use, (with minute variables) can be broken down into 5 categories; or 5 pieces of a pie. I will discuss the first part of that credit pie today.
Your payment history is the largest aspect of your credit score, as you might expect. In total, your pay history accounts for 35% of your total score. This portion of your total score calculation is based on your prior payment history with your creditors. Late payments, defaulted accounts, bankruptcies, and all other NEGATIVE information on your credit report have the greatest effect. The more recent the late payment, the greater the damage is to your credit score. If you go late on your mortgage this month, the Mortgage Industry Option scoring model could drop your scores over 120 points. That is with only one 30 day late payment!
Everyone knows what a FICO score is. If you’re a business owner you better know what a Paydex score is and why it’s important these days. Paydex is the equivalent of a consumers FICO score. It measures your businesses credit worthiness and is being looked at more and more by lenders.
Business credit agencies use this business scoring system to determine the credit rating of small businesses. Dun & Bradstreet and Experian are two of the larger ones. You can simply sign up at www.dnb.com. You will be assigned a number and then it’s up to you to build your credit in a similar fashion as you would your FICO score.
Paydex scores range from 0 to 100. Anything 80 and above is good and where you must be in order to obtain business financing. Below 80, and just like a FICO score, you can have problems.