Why An 80 Paydex Is Not Enough

A new subscriber contacted me after seeing one of my Twitter posts offering a free consultation. Don owns a small construction company. He was frustrated because he had already spent over $2500 for a service with another credit enhancement company and still can't get approved for any substantial credit. He sent me a copy of his D&B report and asked if I could take a look at it.

Don's frustration comes from being told that all he needed was that magical 80 Paydex score and he would be on his way to higher credit approvals. Unfortunately, the news I had for him wasn't good. In fact, the company he has been working with has a history of specializing in getting businesses (yes) a Paydex score... but usually only a Paydex score, before his progress (and their support) drops off.

And that's because its easy to meet the lowest possible requirements for getting a Paydex score. All you need is three payments in the D&B file. Anybody can do that. But there are actually five OTHER credit scores in the D&B arsenal, and getting your clients substantial (and sustainable) credit requires you to keep working and improving all six of the scores and ratings — and you can't do that if you don't have the knowledge and experience to accomplish that for your clients.

In Don's case, his 80 Paydex score wasn't doing him any good because the rest of his scores were horrible. Instead of boosting his ability to get approvals, his scores were sending just the opposite message, telling creditors his business was high risk, low viability, and 88.6% likely to fail within the next 12 months.

Even worse, that other company was so determined to string Don along (and the fees he was paying) that they kept creating more new accounts in his business name and sending out one application after another, cannibalizing his personal credit scores and D&B risk ratings in the process.

And just when he thought things couldn't get any worse, his best supplier actually cut off his credit line after being alerted by D&B that his business is now showing signs of severe financial distress.

When reviewing Don's corporate credit report, it was easy to identify all the problem areas, and easy to understand why D&B had downgraded his business. He only had four payments in his credit report, but he had 47 inquiries in just 90 days, most of them in credit and finance-based industries, and virtually no in-depth data about his company. His credit scores tanked under the negative weight.

Imagine his relief when I told him how easy its going to be to reverse the damage. Not only did I help him lay out a plan for improving his existing scores and ratings, but I also showed him how to update the data in his file for free, reduce future inquiries, add his legitimate existing payment history, and monitor his progress at no charge.

I also shared the below basic information about the five other scores and ratings found in his D&B report and how improving those scores will get him on the right track to those credit approvals he's been looking for. This information is freely available on the Glossary page of D&B's website.

Paydex score — Scale is 0 to 100, and 80 is optimum. You get a Paydex score if you have 3 or more payments in your file, at least one of which is credit (not COD's). An 80 Paydex means that you pay your bills on time. To get higher than 80, your suppliers need to report you pay on discount, such as 2% 10 Net 30. The score is dollar-weighted, so if you have a lot of positive payments in your file, one or two negatives won't have as much of a negative impact.

Why this matters to you: Most creditors will pull an inquiry on your credit file to see your scores. If you don't have a Paydex score, they aren't interested.

Delinquency Predictor Score — Rates the potential that your business will pay your bills late or not at all in the coming 12 months, based off your performance in the previous 24 months. Score includes a "Class" or risk ranking on a scale of 1-5 with 5 being highest risk to suppliers.

Why this matters to you: When creditors pull that first inquiry, they will be able to see your Delinquency Predictor Class, and some require a Class 3 or lower to get an approval.

Financial Stress Score — Rates the potential that your business will become insolvent or fail in the coming 12 months, based off your payment performance in the previous 24 months and the validity of the financial data in your file. Places a "Class" or risk ranking on a scale of 1-5 with 5 being highest risk to suppliers.

Why this matters to you: When creditors pull that first inquiry, they will be able to see your Financial Stress Class, and most require a Class 3 or lower.

Supplier Evaluation Risk Rating — Rates the strength of the data being reported by your suppliers, and your supplier's overall creditworthiness. Scores on a scale of 1-9 with 9 being highest risk. Why this matters to you: Nearly every creditor and supplier who use D&B data depend on this score to tell them how responsible you have been with other suppliers. Scores or 5 and lower move to the head of the class.

D&B Rating — Provides a rating for your business in one of two ways:

• by employee count and overall composite credit appraisal, or

• by net worth and overall composite credit appraisal

To be rated according to your net worth, you will need to provide financial statements.

Why this matters to you: Many creditors and lenders will automatically decline any applications from companies that do not have (at minimum) a D&B Rating, meaning D&B has fully verified all business information has been collected and is accurate.

D&B Viability Rating — This score gauges the trustworthiness of your company and the viability of the data. Lower numbers and letters indicate more trustworthiness through strong data. This score usually doesn't fluctuate much unless payment history improves or declines.

Why this matters to you: When D&B designed this score in 2010, they did so to replace their existing Commercial Credit Score. Virtually every creditor that draws data on applicants requires this score to meet a minimum criteria in order to be considered. Constant fluctuation of this score is a sign of risk.

If you are having trouble moving forward with your corporate credit, give me a call so we can take a look at your credit profile and see where you stand. Just like Don, you may find you're already half-way to your goals.