Paydex vs. FICO who wins?

It’s time for your quiz.  Who issues Paydex scores?  Who issues FICO scores?  What is the scoring range for Paydex Scores?  What is the scoring range for FICO scores?  Which one is most important?  Do they both matter?  If you know the answers to all of these questions then you pass and there’s no need to read further.  I’m guessing that most of you will agree that the world of business credit and obtaining small business financing is a frustrating and often confusing world.  Then when you consider that much of what you will find online is bad, wrong, misleading, or just so incredibly shallow you have the formula for more confusion and frustration.  So let’s debunk some myths and clear up some of the confusion.

Paydex scores are issued by Dun & Bradstreet, the oldest and largest business credit agency.  Paydex scores range from 0 to 100.  It’s generally believed and accepted that scores of 75 and over are strong and reflect a lower-risk business borrowing entity.  A paydex score is a business credit score that is designed to help lenders to determine risk and to assist them in making their underwriting decision.  Paydex scores are widely used by banks and non-bank lenders and you would be wise to know and understand your Paydex score and to learn about your business credit with the oldest, largest, and most widely used business credit bureau.

FICO scores are personal credit scores that are issued by the Fair Isaac Corporation, the most popular and most widely used personal credit scoring system.  There are many versions of FICO scores and each bureau has different names for their FICO scores as well as older and newer versions of those FICO’s.  The most commonly used (notice I didn’t say the most “up-to-date”) FICO versions are Equifax Beacon 5.0, Transunion TU 04 (see pages 15-16), and Experian Fair Issac Risk Score v2.  The goal of the FICO score is very clear: to determine the liklihood that you will become 90 days delinquent in the next 24 months.  It’s a predictive model.  As for the FICO scoring range – this could be a separate blog in and of itself – the “normal” range is 300 – 850.  With multiple versions, generations, etc. there are many variations to that but most FICO’s are going to range from 300 to 850 or something very close to that range.

It’s important to note that there are hundreds and maybe even thousands of places online where you can purchase your “credit scores.”  However, there are only two places online where you can purchase your FICO scores.  The first is the FICO consumer website, MyFico.com.  You can purchase 2 of your 3 FICO scores here.  Unfortunately there is nowhere online that any of us as consumers can purchase our Experian FICO scores.  Back in Feb. 2009 Experian discontinued their consumer contractual agreement with Fair Isaac/MyFico and, as a result, the only Experian credit scores that are available online are what are referred to as “FAKO” scores.  The second place you can purchase your FICO score online is Equifax – but they don’t make it easy because they would rather sell you “their” Equifax Credit Score and not your FICO score.  You can buy the Equifax FICO here.  Of course it’s only your one FICO score from Equifax and you can purchase it on the myfico.com site as well but those are the only two places you can get the score that really matters.  All the other online credit scores are using totally different scoring models and most of them are not being used by lenders…therefore they are called FAKO scores.

Many lenders and banks will look at both your FICO scores and your Paydex score.  Some will only choose one of them.  It’s also important to mention that it’s very common for banks to use their own internal scoring systems “in addition” to FICO scores and/or Paydex scores.  For example, if you have a great FICO score but you bounced 10 checks with ABC Bank then you may not get approved or get their best rates when applying for a loan or line of credit simply because their internal scoring system rated you very low.  It’s one of the factors to consider when deciding which bank to approach for your funding.  It’s a bit ironic to me that I often hear people downplay the importance of credit scores or they talk about how they don’t make sense, aren’t fair, or some other complaint/frustration.  I get it that it can be confusing and frustrating but do you know even one bank that doesn’t use FICO scores or Paydex scores as part of their process of accepting new clients and/or new loan applications?  That’s also a deceiving question because we’ve consistently found that people within the banks don’t really know these details.  They are not trained on the details of the analytical scoring and grading models that their bank employs.  But all this is ironic because we complain about something but then we’re also perplexed about why many of our loan applications are not approved by these banks!

We always ask people two basic questions.  Is there any reason why you wouldn’t want a good FICO score and is there any reason why you wouldn’t want a good Business Credit Score?  With that in mind you can begin to clearly understand where you really stand with your business and personal credit.  And don’t beat yourself up for not understanding these basics.  As I write this in Sept. of 2012 just earlier this week I helped a well-known business credit expert who told me she didn’t understand why her personal FICO scores were so low and that they shouldn’t be low.  She is extremely knowledgeable about business credit (and is also a friendly and wonderful young lady).  As she told me about how much it didn’t make sense she also let me know that she had an “expert” look at it with her and it made no sense to them why her scores were so low.  Ironically she had no idea of the difference between FICO scores and FAKO scores – remember she’s a business credit expert and has written a book about that subject – and after a 3 minute conversation I sent her to the myfico site and she emailed me a few minutes later to confirm that her FICO scores were excellent (800 & 787 to be exact) and the confusion was gone.

It’s all important.  It can be confusing.  Personal credit and business credit can be confusing but we can also sift through the clutter and see the light if we are around the right people and in the right places like this blog.  Your business and personal credit can be assets or liabilities and what you do about that is completely up to you.  If they are excellent then protect and preserve them and if they need some work then start being intentional and strategic to turn them from liabilities into assets.  You, your family, and your business stand to benefit.