Just as creditors will look at a personal credit score before making a decision to lend to an individual, business lenders look at a business credit score before determining whether or not to lend to the business. While there are certain similarities between the two systems, they work a little differently.

There have been a number of business credit reporting agencies that have cropped up over the years, but the primary one – and probably the only one I’d concern myself with – is Paydex from Dunn & Bradstreet. The main difference between business credit scores and personal credit scores is that while the consumer side takes many factors into consideration, Paydex only considers two things: whether a business makes their payments on time and whether they satisfy the creditor’s payment terms.

A Paydex score ranges between 0 and 100 with 80+ being in the top tier. A score of 70 means you were 15 days late on your bills and a score of 50 means your were 30 days late. Jut like the consumer side, as you pay your bills on time and practice good credit habits, your score will increase. If you’re trying to establish credit, there are a couple of ways to go about doing this.

1.) You can enroll in the CreditBuilder or Scorebuilder programs offered through D&B

The drawback to this is that these programs can cost several hundred dollars. But, they are a quick way to establish a credit rating.

2.) Apply for a D-U-N-S number

This is a nine-digit identification number that you can use to establish a small line of credit with a company that reports to D&B. Note: if a company doesn’t report to D&B, then don’t waste your time applying there if you’re trying to establish a Paydex score.

It’s not required that you build credit through D&B, of course, though this is the most respected. And it’s not required that you build credit for the business at all. If you’re more comfortable, you can always continue applying for credit under your personal info. However, there are drawbacks to that such as the tax benefits that you’re missing out on.

Like consumer credit, business lenders want to see continuous activity. Once you’ve established your Paydex score, you have to keep using it. Too often business owners make the mistake of stopping and that can cause the score to drop. Even if you’re only using small lines of credit from some of your vendors – like an office supply chain – at least there is some activity to keep your business credit positive. A further note of caution is to continue to be diligent with your personal scores as well. In most cases, a lender will pull your personal credit along with your business credit to get a complete picture of the company’s strength. A poor personal performance can cause problems for the business.

And that’s really all there is to it. Many people think the best way to build credit for the business account is to get a business credit card, but the problem with that is that business credit card applications generally require the owner to pledge their personal property as collateral. Going the Paydex route means that your personal property stays personal and as long as you maintain a balance with your personal score and your business score, you’ll be able to deal quite easily with business lenders.

Anyone with a business deal with Paydex for their scores? If not, who do you use and why?

Related posts:

1. Shedding Debt vs. the Credit Score
2. New FICO Score Information
3. An Introduction to Business Credit Cards
4. 15 ways to improve your Credit score (Part 2)
5. Why raise your Fico score?