Business Credit Cards Carry a High Personal Credit Risk for Business Owners
Tuesday, December 15th 2009 @ 3:05 PM 
(1 ratings)
After Byron Hebert began a Limousine business in Daytona Beach Florida, back in 2007, he was approved for 2 business credit cards. One had a credit line of $7,000, the other had a credit line of $25,000, Herbert used these credit lines to manage his business cash flow.
Recently Hebert learned that these cards have a big risk to his personal credit score: Capital One reported his business credit line to the personal credit reporting agencies. What this did was make his personal credit look over extended to any creditor that may have checked his credit.
Typically business credit is reported to commercial credit bureaus such as Experian Small Business and Dun and Bradstreet. How ever when business credit cards appear on personal credit reports, this could have a big negative effect.
As an example, when an additional credit line of $20,000 in business debt was added to what Hebert had on personal credit cards, this prompted Bank of America to cancel one of Herbert's personal credit card accounts and reduce another credit line down by $26,000.00, which was just $200 above the current balance. This caused Hebert's credit score that was in the upper 700s to fall to the lower 700s.
Capital One is one of the first business credit card issues to report business credit accounts that are not delinquent to the personal credit bureaus and you can expect to see other issuers follow this practice.
So how is this legal? As long as the issuer has the authorization by the business owner to check on their personal credit, it is perfectly legal and typically, consumers grant authorization at the time they apply for any business credit card.
Unfortunately the CARD Act that takes effect on February 22nd does not include business credit cards and this adds to the drawbacks of having and using business credit.
What can you do as a business owner to reduce these risks?
1. Keep your personal credit debt utilization low. Stay above 10% and below 30% of your available credit line.
2. Regularly monitor your personal credit reports to ensure they are reporting accurate information. This is important because 70% to 80% of consumer credit reports contain errors.
3. Use alternative business funding techniques such as thoughts taught in the "Cash Flow Corporate" course at www.makeitandkeepit.com to manage your business cash flow and only use business credit when necessary.
| | Erik Salmon, CCFC, is the author of "The Art of Corporate Credit & Finance" and has consulted with over 10,000 companies on how to build corporate credit and fund business ventures. If you would like to find out more about business financing visit http://www.makeitandkeepit.com |
