Gerri Detweiler, CreditBloggers.com
Small business owners may see their credit scores drop as Capital One Small Business credit cards begin appearing on their personal credit reports. This change has me shaking my head — what are they thinking?
Quick background: Small business credit cards traditionally do not appear on personal credit reports unless the business owner defaults. This can be a big plus if the business is carrying high balances or using the card heavily to maximize rewards.
As regular readers of Creditbloggers know, carrying a balance on a card can hurt your “utilization ratio” – the amount of debt you carry in relation to your available credit line. It’s an important part of your credit score. The ideal utilization ratio is around 10 percent or less, according to my colleague John Ulzheimer. Even if you pay your balances off in full, if you use a card heavily, you can get dinged for this factor since the credit report simply lists the balance at the time the lender reports.
For years, Capital One did not report small business accounts on the owners’ personal credit reports. Personally, I think that’s the way it should be. If you truly have a separate business, and it pays its debts, then those accounts should remain with the business. If you default, then the personal guarantee kicks in, and it will be reported. I am okay with that.
This Cortera blog post does a good job detailing how hard the credit crisis is hurting small business owners right now. Capital and credit are hard to come by, and if this change lowers entrepreneur’s personal credit scores it will only make things worse. I’ve outlined some steps Capital One Small Business cardholders can take on the blog I write for AllBusiness.com.
Read more on CreditBloggers.com
Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of a new ebook, Business Credit Success: Get on the Financing Fast Track.
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