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Business credit scores, like personal credit scores, reflect your history of credit use. With personal credit, if you lock your credit cards away and never use them your scores will diminish. The same thing happens with business credit.
However, earning a high Paydex score, Dun & Bradstreet’s (D&B) business credit rating, is easier and more straightforward than building a high personal credit score. Take a look at this previous column for details on how to grow your Paydex score.
It’s important to remember that the rules of business credit differ greatly from personal credit. Since my four-part series on building business credit, I’ve received many questions from readers asking about opening too many business credit accounts and the negative repercussions of applying for credit.
Having too many accounts can lower your personal credit scores and you will take a hit to your FICO scores each time you apply for personal credit or allow someone to check your personal credit history. However, your Paydex score will not go down when you open business credit accounts or when a merchant checks your business credit history. Unfortunately, Experian does not reveal its detailed business credit scoring techniques so it is difficult to know if these actions will affect your business credit score from them.
If you’re developing your business credit file, wait a minimum of five weeks between credit applications and only apply for one account each month. Most companies belong to the D&B network, where you can check your credit file as often as you desire, free, on the D&B website. Be certain the latest account you’ve opened has reported to D&B before you open the next one.
When you are opening business credit accounts to develop a robust credit file, plan your account development strategy in advance, based on your business needs. You want to begin using each account immediately after it is active to create your responsible credit history and increase your Paydex score. Using an account every month is much easier when it’s a company where the products or services are needed by your business.
By following the credit-building plan described in my Build Awesome Business Credit series, you will position your company to be granted accounts with increasingly higher credit limits.
A reader, who carefully established her business credit accounts during her first six months of operation and refused to ever use personal credit to qualify for an account, was recently approved for an oil company credit card (using no personal credit information) with a $6000 limit. If she had applied for the same account a few months ago, her limit would likely have been much lower.
Open accounts slowly and pay bills before invoices are generated to receive maximum Paydex scoring. Take a look at this D&B Paydex Value Table to understand the difference that paying early makes to your Paydex score. Use all of your accounts each month — even if you’re only purchasing a package of Post-It notes. This process will ensure that you rapidly grow your credit score along with your credit history.
Stick to your monthly growth plan and maintain a Paydex score of 80, or higher. After being in business for two years, with a high Paydex score, a vibrant business credit file, and other healthy financials, you should qualify for any credit your business requires.