Some small business owners have seen their credit scores drop as all Capital One Small Business credit card activity – positive and negative – began 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 the Credit.com blog 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. 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’d love to hear from some cardholders on this topic. Has this affected your credit? How are you going to respond?