Keeping business credit off of your personal record
Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.
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Dear Your Business Credit,
I want to
keep business and personal separate. Which cards allow me to personally
guarantee the card but not report to my personal credit report as an open
account? -- Aaron
business finances separate from your personal ones is a smart decision. At the
most basic level, it will help you avoid confusion in your financial record
keeping. You'll never have to look back at a restaurant receipt at tax time and
wonder: Was this a business dinner -- or a night out with the guys?
next step toward separating your business and personal finances by forming a
limited liability company or LLC will also bring some personal protection from
legal liabilities at your business. As long as you maintain the LLC properly, if
someone sues the business, they will have to go after the assets of the
business, rather than personal assets like, say, your house. A good lawyer can
advise you on the best ways to safeguard your liability protection. One key
step is using a separate credit card for purchases made by the LLC.
In answer to
your question, corporate cards for big companies will often come with
"commercial liability," where the company is considered fully responsible for
the debt. However, as you may have discovered, most small business credit cards
offer "joint and several" liability, where you, as an individual, share
responsibility for the business debts with your company. That means that you become a co-signer on the
agreement and are equally responsible for the debt.
card shows up on your personal credit record depends on the specific card. According
to a December 2012 report by the Consumer Financial Protection
Bureau, banks "who issue revolving credit to consumers usually report
trade line information monthly on consumer cards but are less likely to report
on small business cards even when these are owed by, and underwritten based on,
the personal credit history of the business owner."
are always in flux, so it's best to check with the issuer about its practices before
you sign up for a small business card. But here are some general guidelines.
Chase says that as long as payments are made on
time for its Ink business cards, the accounts don't show up on the cardholder's
personal credit record. The Capital One Spark and American Express OPEN
business cards follow the same policy, according to Rohit Arora, CEO of Biz2Credit, an online
loan broker based in New York City. Capital One and American
Express did not respond to requests for comment.
Others say Chase's approach is common. Troy
Holland, CEO of HIC Financial, which helps low- to moderate-income entrepreneurs
get access to capital, says that from his experience, nine times out of 10, responsible
use of business cards won't show up on your personal credit record.
The main exception that Arora has seen is if
you're perceived as relying too heavily on credit. If you're using more than half
of your credit limit on your business card, and you're only making the minimum
payment each month, your behavior will likely be reflected on your personal credit
And, of course, if you default, all bets are off.
Pay more than 45 days late and it will go on your personal record, according to
Arora. The same will happen if you withhold payment over a dispute and
it isn't resolved within 90 days or so.
consideration is whether a new credit card is right for you in the first place.
Many small businesses are having trouble paying their debts right now.
According to Experian and Moody's Analytics Small Business Credit Index,
delinquent balances rose significantly in the fourth quarter of 2012 because of
sluggish retail sales that hurt small business revenues.
great to have credit available, you don't want to put yourself in a situation
where you're in over your head. It's a lot more fun to run a small business if
you stay in the black.
See related: Regularly broaching credit limit on business card brings risks, Should you fund your startup business with a credit card?, How businesses can start on the road to credit
Elaine Pofeldt is a journalist who specializes in entrepreneurship and careers, contributing to publications such as Fortune, Money, Working Mother and many others. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals.
Elaine answers a question about small business and credit from a CreditCards.com reader each week.
Send your question to Your Business Credit.
Published: April 1, 2013