| Manage Your Credit Identity
Most business owners do not know that the timeliness of their payments to suppliers is compiled by Dun & Bradstreet into a database accessible by lenders who base much of their credit decision on this “Paydex” score.
Following are the step-by-step instructions for finding out your score before applying for credit. Knowing you have a great score empowers you to stronger negotiations and knowing what has lowered your score enables you to make any needed improvements and/or corrections.
You can access your Paydex score by signing up for Dun & Bradstreet’s “Credit Builder Basic” at a cost of $84 per month at www.dandb.com/credit-builder.
Skip the $10,000 per year “Concierge” package. We recommend signing up for a couple months of the basic package to tune up, then revisit it once or twice a year to check in.
We recently had a client who’s Paydex score had dropped from an impressive 75 to a dismal 32.
Upon checking we noticed that their report indicated a large overdue payable to their law firm. We provided D&B with a letter from the law firm stating that the balance due was within their normal credit terms, growing during a lengthy business acquisition process and had actually since been paid. D&B raised the Paydex score back to 75 and we were then able to secure financing for our client. You can also use the Credit Builder Basic membership to add supplier relationships that don’t already report to D&B.
Almost all commercial credit decisions now hinge on the personal credit score of the business’s principals along with the Paydex score of the company itself.
Business owners should know everything on their personal credit report which can be obtained at www.freecreditreport.com. One of the three credit reporting agencies will be available for free, but during critical times, it is better to obtain all three at a cost of $33 to uncover information appearing on one but not another.
Personal credit scores under 625 are problematic.
Over 700 is where you want to be; the closer to 800 the better. Once you have your own report you can include it with credit applications, directing the lender not to pull a report until they absolutely need it since third-part inquiries lower your credit score.
Using credit cards to their lending limit, even when one pays in full and on time, still lowers one’s credit score, as the ideal percentage of balance to credit limit is 20%.
If you use credit cards extensively, whether for business or personal use, you can preserve your credit score by making interim payments during the month to keep the utilization rate close to that 20% ideal. Managing your credit identity is one aspect of smart capital management. Our next issue in the “Winning” series will touch on the ways to communicate about your business beyond the limits of what your financial statements convey.
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