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.
So let’s talk about how to get a Paydex score. You have several options. The first and easiest is paying someone to build your business credit. Dun & Bradstreet will do it for about $500 and I think it’s the best deal in town. There are other companies out there that claim to do it better and faster. The bottom line is it takes time and no one can speed up that process.
Now you can also build your business credit score yourself. Simply go out and apply for 4-6 “trade line” accounts. Staples, UPS store, Kinko’s and places like that. There are dozens of them. Typically you can apply for and get several hundred dollars worth of credit with only an EIN. Just make sure the trade lines report to the business credit bureaus.
Use and pay off the lines for 2-4 billing cycles and you will have established a Paydex score. There are other factors such as time in business, etc, but the main focus of your Paydex score are these trade line accounts and the fact that you’d paid them on time. And yes, it’s kind of a hassle and why I recommend you just pay D & B to do it. Now for those of you that want this do it yourself method, www.thesmallbizcollege.com has a complete list of trade line accounts you can apply for and also a business credit builder e-book that goes through the exacting process of building business credit. The book and list sell on line for $129.95. We’ve purchased the re-print rights and are giving it for free to members.
Now you’re going to encounter a charlatan or three out there that are going to try and get you to pay big bucks to do what we’ve just talked about. They’re going to promise you untold riches and tell you that just with a good Paydex score you can get business credit lines of hundreds of thousands of dollars with NO personal guarantee or recourse in the event of default. That’s a lot of hogwash. The reasons you want a business credit score are:
- Business credit scores are being looked at more and more by lenders and is the main reason you should have one.
- Having business credit establishes your credibility and very existence to insurance companies, vendors and the like.
- A good score can aide in getting contractual work especially from the government.
That’s pretty much it. As always, I keep this stuff short knowing you’re busy as I am. Any questions, feel free to ask.