A small business owner can’t always get away with using their personal credit score to demonstrate their creditworthiness. Vendors and lenders also often consider business credit scores, including the popular Dun & Bradstreet PAYDEX Score.
If you’re a business owner, here’s what you need to know about your PAYDEX Score, including what behaviors affect it, when and how others use it, and what qualifies as a good one.
Is 80 a Good PAYDEX Score?
A PAYDEX Score of 80 or more is a good business credit score. If you have an 80 PAYDEX Score, you’re in luck. It’s the minimum necessary to qualify as a low-risk business per the primary scoring method in Dun & Bradstreet’s credit suite.
Having a good PAYDEX Score means you have a history of paying your suppliers and other vendors on time, if not early. If you’re anywhere below the 80 cutoff, it means you usually fulfill your obligations at least a day or two late.
While it’s always ideal for your business and individual credit scores to be as high as possible, you can be proud of an 80 PAYDEX Score and rest assured that it’s good enough to make any prospective vendor or lender trust your creditworthiness.
PAYDEX Score Ranges
Like Intelliscore Plus, one of the other popular business credit scores, the PAYDEX scale goes from 0 to 100. As usual, the higher the number, the lower the risk your company presents to potential vendors and creditors.
Along that scale, PAYDEX Scores can fall into three different ranges:
- 0 to 49: Having a PAYDEX Score within this range means that your business pays very late, on average. Vendors and creditors will consider you high risk and be reluctant to work with you. If they do, you’ll receive less favorable terms.
- 50 to 79: A PAYDEX Score within this range means your business is a moderate risk to potential vendors or lenders. You still usually pay late, but you make your payments within a month at most, on average.
- 80 to 100: This PAYDEX Score range makes your business low risk. Your good credit score means you usually make your payments the day they’re due or sooner. If it’s exactly 80, it means you generally pay on time. Having a score of 100 means you make your payments a month in advance, on average.
Fortunately, the nature of the PAYDEX Score means you don’t need to worry about having a perfect one. In most cases, it’s perfectly acceptable to make your payments on the days that they’re due.
In fact, in many lines of business, it’d be unusual for you to pay in advance by an entire month. Generally, the only reason to pay that early is when one of your vendors offers you a discount for doing so.
As a result, your priority should generally be to maintain a score of at least 80. If you happen to beat that, it’s icing on the cake, but probably not necessary.
How the PAYDEX Is Used
Like any other business credit score, third parties use your PAYDEX Score to determine whether or not they’re willing to do business with you or your company.
Here are some of the types of entities that may check your PAYDEX Score and how they use it:
- Suppliers: Suppliers and vendors often operate on a net-30 or net-60 schedule. They’re among the most likely to check your PAYDEX Score. They want to know whether you complete your invoices on time or not because it has such an impact on their business’s cash flow.
- Landlords: If your business needs to lease commercial real estate for an office, construction, or storage space, your prospective landlord may consider your PAYDEX Score. It might determine whether or not you qualify, but it can also affect your terms, such as the size of your security deposit or monthly rates.
- Lenders: Your PAYDEX score will impact whether or not they’re willing to lend to you, your potential small business loan amount, and your interest rate.
- Insurers: Last but not least, insurance companies may also check your PAYDEX Score. As with lenders, having a score that makes you low-risk will encourage insurers to offer you more favorable terms, including a lower premium.
Unlike your personal credit reports, anyone can pull your business credit report and use it to calculate your PAYDEX Score. As a result, you should assume it’s fair game for anyone considering doing business with your company.
How the PAYDEX Score Is Calculated
Your PAYDEX Score represents a weighted average of payment timeliness over the last two years of your trade credit history. In fact, you can directly translate your PAYDEX Score to the day that you usually make payments to vendors.
For example, here’s what the following PAYDEX Scores say your business’s average payment schedule is:
- 100: 30 days early
- 80: On-time
- 60: 22 days late
- 40: 60 days late
- 20: 120 days late
To create your weighted average, Dun & Bradstreet emphasizes payments according to their size and timeliness. Larger and more recent transactions have a more substantial impact on your PAYDEX Score than smaller and older ones.
For example, the $10,000 payment you made on time last month has a much higher effect than the $500 payment you paid two weeks late several months ago.
The PAYDEX Score places such a premium on recent payment history that it only includes transactions with vendors from the last two years. Your payments before that stay in your business’s Dun & Bradstreet credit report, but they don’t affect your score.
To generate a PAYDEX Score, your credit report must show two or more vendor tradelines with at least three payments within the last two years.
Remember that only transactions with suppliers and vendors count. Your interactions with lenders and creditors won’t impact your PAYDEX Score at all.
How To Improve Your PAYDEX Score
Unlike your consumer credit score, which consists of multiple scoring factors, there’s only one thing driving your PAYDEX Score: the timeliness of your vendor payments. As a result, your options for improving it are much more limited than with your FICO score.
Essentially, all you can do is add more prompt payments to vendors in order to improve your business credit report. Here are three ways to do that:
- Acquire more tradelines: Having more tradelines means you have more opportunities to improve your score. You don’t want to take on expenses just for credit building purposes, but consider asking businesses you work with to offer you extended payment terms or increase your credit limit.
- Report more transactions: Completing business payments on net-30 or net-60 terms won’t help you if the vendor doesn’t report the activity. Make sure your vendors are sharing your transactions with the Dun & Bradstreet business credit bureau. If they won’t, you can pay for it yourself with their credit builder program.
- Improve your payment habits: Reporting more transactions won’t benefit you at all if you’re making your payments late. To build business credit, you must pay your bills on time and in full. If you can afford to pay them early, that can help you make up for a previous late payment.
One great way to supercharge your results is to further extend your payment terms. For example, if you get a vendor to upgrade you from net-30 to net-60 terms but continue to pay net-30, they’ll report you as paying a month early rather than merely on time.
Remember that only vendor tradelines increase your PAYDEX Score, so don’t bother trying to take out a new business credit card or get your lenders to report your transactions with them to Dun & Bradstreet.
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