Why a good business credit score matters

Why a good business credit score matters

As an entrepreneur, you simply can't afford to gamble with your business credit score. Fortunately, there are some tips you can follow to shore it up over time.

During the 1980s, actor Robert Townsend used quite a few credit cards to finance "Hollywood Shuffle," the independent film that he wrote, directed, produced, and even starred in. Townsend rolled his financial dice and racked up nearly $100,000 in credit card debt, but he got Hollywood's attention and a new career. As an entrepreneur, though, you should never gamble with your business credit score.

Paydex and merchant accounts.
Even in today's shaky economy, most consumers use their credit cards to make everyday purchases, which is why you need a merchant account. An extension of credit for your business, this account allows you to accept Visa, MasterCard and other credit cards from customers. The lender who maintains your merchant account, also known as an acquiring bank, transfers the proceeds from each credit card transaction to you, subtracting any necessary fees and surcharges.

Before opening a merchant account for you, an acquiring bank will see if your business is a significant credit risk. One of the best indicators is your Paydex score, which is the business equivalent of the FICO score for personal credit. Maintained by Dun & Bradstreet, the Paydex scale runs from 0 to 100; any score of 80 or above means that your business is a good risk for an acquiring bank. If your score falls below 50, however, you may have trouble setting up a merchant account for credit card processing, or your fees will be higher than the average.

Get a D-U-N-S number
Creditors identify people by their Social Security number. However, as a business owner, you really need a D-U-N-S number. Short for the data universal numbering system, this nine-digit code is the way that Dun & Bradstreet identifies your business. When creditors such as an acquiring bank check on your payment history, they can check your Paydex rating to make sure you are a good risk. You can get all the information you need about obtaining a D-U-N-S number from the Dun & Bradstreet Web site. The process is about as painless as applying for a personal credit card online, but it can take several days to get a result.

Establishing business credit.
As a new business owner, you may have to use your own personal credit as a springboard to obtaining operating credit. Some credit card issuers such as Discover and Chase offer business credit cards to customers who already have an established relationship with their company. When applying for one of these business cards, make sure that the issuer reports your payment history to Dun & Bradstreet and Equifax, which will make your Paydex score more accurate.

Maintaining a good business credit score
Like your personal FICO number, you definitely need to take good care of your Paydex score because a low number can hinder your efforts to get business credit. Some of the basic steps to follow include:

• Always pay your business creditors on time or, if possible, a few days early.
• Establish credit with companies that report to Dun & Bradstreet, which will update your Paydex score.
• Make sure that your employees watch out for credit card fraud.

Finally, remember that if you get a high number of chargebacks where a consumer successfully disputes a merchant charge, this can knock your Paydex number down a few notches.

Published: June 5,2023