Credit Score

Capital One Credit Reporting Causes New Problems for Small Business

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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?

 

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  • http://www.daytonalimos.com Daytona Limos

    Capital One Screws small business owners!
    Capital One has screwed me over royally. This is more than just a rant, this is a warning. I know the majority of everyone on this blog is a small business owner, who started small and has been working extremely hard to stay a float during these trying economic times. If you have a Capital One card I suggest you read my warning.
    Here is what Capital One did, and how it may affect you as well. Capital One has now decided to report Business Credit Cards as personal debt to the primary executive’s credit report. Read this blog which sums up the entire thing: http://www.allbusiness.com/company-activities-management/company-structures-ownership/13280206-1.html
    Let me explain how this affects me. I am the 50% owner of Daytona Limos which is a Florida based corporation. Daytona Limos is set up as its own corporate entity, thus having its own ETN number for taxing paying purposes and credit purposes. As most of you know who have a company set up this way your businesses credit and debts do not affect your personal credit in any manor unless you default on your account in which case creditors can come after the main executive that provided their social security number.
    In 2007 I opened two Capital One small business accounts, and as with most business credit cards in addition to the business ETN number they must have an executive’s social security number to open a card. Capital One started out very good to us, they where the first and third credit cards the company was able to secure. The cards combined have a credit limit of $30,000.00 which has been very helpful in growing the business. Both of the cards for the first year offered 0% interest on all purchases and now have an excellent APR of 7.9% fixed for all purchases. Daytona Limos has been a Capital One Business Card holder since spring of 2007. During which time we have never exceeded our credit limit or been late on a payment. During our almost 3 years as a card holder our balances have fluctuated from near the limit to at other times the balance being very low, depending on cash flow different times of the year.
    I have been very pleased with Capital One until today. I am now enraged beyond belief at what they are doing to all Small Business Card holders. Capital One now reports the businesses debt as your own personal debit. So now overnight my credit score and debt to income ration has been screwed. Now when my credit report is pulled it shows I owe an extra $20,000 of credit card debt from Capital One. Now if this wasn’t bad enough it shows on your personal credit report as personal debit, so when other lenders look at your report they have no idea its from a business card.
    I just discovered Capital One had screwed me today when I received a letter from my personal Bank of America credit card which I have been a card holder of since 2001, during which time I have never been late on a payment or over the limit. Bank of America notified me that due to a recent review of my account that I was no longer considered a worthy risk due to my high credit card debt and debit to income ratio. I was baffled as to how this could be because I check my credit report each month. I have a few personal credit card accounts with balances but nothing major. I have never been late on any payment for any account. I have never had any collections or repossession in my lifetime. The letter also notified me of changes they made to my to Bank of America credit card accounts. My first card with them which had a $10,000.00 credit limit and a zero balance was closed. The second card I have with them with had a $35,000.00 limit and a $9,700.00 balance, they reduced my credit limit to $9,900.00. So basically I now have $200.00 available credit with them. I called Bank of America to see what in the world had caused this substantial change. That is when I found out Capital One was now showing my business card as my own personal debit. I spoke till I was blue in the face to Bank of America and they could care less and kept saying I needed to work the issue out with Capital One because their report shows it as personal debt.
    I checked my credit report right after the call and sure enough there it was, an extra $20,000.00 of credit card debit now shows up on my personal credit report with all 3 bureaus. The debit shows as Capital One and shows my business account number however it says nothing about being business debt. I called Capital One furious about what they had done. I spoke to three different people and spent over an hour on the phone with them. I worked up thru the supervisors until they would transfer me no more. Long story short their answer was that’s their new policy and if I wanted they could mail me a copy of it. They could careless what is has done to my personal credit.
    Now my point is how in the world can a business credit card start out one way and not report to your personal credit for almost 3 years and then one day decide to change the policy and start reporting the card as your own personal debit. If Capital One had reported this way from day one I would have never used the card since I as the business owner would not want to be unfairly penalized on my personal credit report. A funny thing, I can’t claim the businesses gross income as my own, but now I have the companies debit assigned to me, that makes lots of sense.
    Now I am stuck, Daytona Limos does not currently have the funds to pay the $20,000.00 balance off right now. So thanks to Capital One I have a reduced credit score and a poor debit to income ratio, when for most of my adult life I have had an excellent credit score, and an excellent debit to income ratio. I now have $200 available credit on my Bank of America Card vs. the $36,000.00 I had last month, which for those of you who know how credit scores work is a huge deal. Now I am using over 99% of my credit limit on my Bank of America card vs. the 25% I was using before. Also now my total available credit on all accounts and total usage ratio are both screwed, all thanks to Capital One. All of these factors poorly affect my personal credit. Now is the fun part, which one of my other credit cards is going to reevaluate me based on Capital Ones ridiculous actions.
    So to any of you who have a Capital One small business card the same thing is going to happen to you. If you have a large balance on your business card it will affect you negatively. To me Capital Ones decision to do this at our current economic state is the cruelest and most un-customer friendly thing they could have possibly done to small businesses.
    If you have a Capital One business card with a balance pay it off if you can. If you are thinking about getting a Capital One business card don’t waste your time, you would be better off using your personal credit cards since its all going to show up on your credit report the same way.
    Comments, questions and other experiences with Capital One welcome.
    Bottom line Capital One Screws Small Business Owners!

  • Robert Catron

    I also own a small business and had a similar situation. Capital One dumped $30K or so of company debt onto my personal credit report. My credit score dropped about 90 points. What is so wrong about this is that it happened just days after I closed on a house. Had it been days before it would have been really REALLY bad. Closing on that house had already been a nightmare dealing with Wells Fargo whose lack of understanding about how an FHA loan works delayed the closing by MONTHS. This extra $30K of, as Capital One is calling it incorrectly, “personal debt” would have dramatically changed my debt to income ratio. Well I pay myself a small salary, which is 25% of the gross income of the company. So the BUSINESS income is large enough to handle the debt with no problem, and it does… We have OUTSTANDING payment history.
    So here’s where it gets interesting, and where Capital One’s claim that they are, as they told me, doing the right thing because people were “hiding their debt” is way way off base. A mortgage company will look at my small salary vs. the debt on my personal credit report to determine whether I can afford a house or not. They WILL NOT consider the gross income of the company. Sure they’ll want to see it, but won’t count it as income — only the salary my company pays me. They will assume that I must be making payments on the debt from my small salary. And rightly so because the debt is on my PERSONAL CREDIT REPORT, and because the salary is my personal income. But I am not making those payments… the company is… OUTSIDE of my salary. SO had this happened days earlier, Capital One would have created a FALSE debt to income ratio.
    Capital One is lying to the credit bureau by saying that I have personal debt that I do not have. Just because something COULD become my debt in the future, that doesn’t make it my debt now. Anything could be my debt in the future…. I could accidentally injure someone and be liable to pay medical bills. Should that potential debt show up on my credit report too? As long as my business pays it, it is NOT MY DEBT, it is my business’s debt.
    One more point… It’s one thing to immediately report to a business owner’s credit report upon getting the new account. At least that way we know what we are getting into. But Capital One tricked us by not reporting it, and then changing the rules midway. If they were really concerned with being responsible lenders as they claim they would start that as a new policy on new accounts only and be forthright about it from the start.
    BOTTOM LINE: CAPITAL ONE REALLY SCREWS SMALL BUSINESS OWNERS! I can’t think of a better way to get all your customers to hate you. Good going brainiacs!

  • http://www.Credit.com Gerri

    Robert,
    Thanks for sharing your story. It’s an excellent illustration of the problems this reporting change can cause. Will you contact us through Credit.com so we can get in touch with you if we hear of additional efforts to change it?
    Thanks,
    Gerri

  • Wayne Massey

    I am considering purchasing a home so I am watching my scores like a hawk. I was amazed in November when my FICO drops 40 points with all three bureaus. I quickly find the culprit.. Capital One is now reporting corporate debt as personal. Amazing as to their logic.. so do I also get to use the corporation’s finances to pay my personal debts too?
    Capital One.. I hope you go the way of Lehman Brothers.. I can never trust your company again.

  • William Duran

    Capitol One has been keeping me in a catch 22 style cyclical argument for some time. This has resulted in hundreds of dollars of un-authorized charges being put on my card and of course exorbitant interest charges (their cut). In short I have tried to pay off and close my account. Capitol One refused numerous times to close the account, and to refuse further charges from companies that I have informed them have no permission or right to charge the account. Since they will not stop accepting fraudulent charges the account can never be paid off and their cut, the interest is assured to continue as well. Capitol One is using this to keep me in perpetual debt that can never be paid off. No company, or individual has permission to charge the account nor have I initiated any charges of any kind in months. And yet the charges keep comming!

  • http://www.cookselfdefenseproducts.com Michael

    Had had a business from 2003-2009 then went bankrupt after the personal cards screwed me (chase) and Capital One didn’t report the credit limits back then neither did chase so all my credit reports were looked as maxed out then my score dropped my APRS went through the roof and I couldn’t afford the payments.. Then out of business I went. I now have one of their Spark Visa business credit cards and I checked all my 3 credit bureau reports and its indeed on there and it says at equifax “business credit card, personal guarantee”. Then the other bureaus list it as a business card so it really will screw your credit up. I got this card to try to re-start my business then I seen they report on your personal credit I said no way can I use this so called business card even with a small limit because business cards all of mine before had very high amounts of heavy activity. With my credit and bankruptcy I got a $750 limit. I called them up and said what can I do with this tiny dinky thing for business and also complained about it being on my credit they said “Sir in order to get a larger line you will have to basically run it up to $700 a month and pay it off in full 3 or 4 times”. I said that will screw up my personal credit score. She said “Its reported as a business card not a personal card so creditors will know the difference”. They say oh it will help your personal credit and business credit. Then I told them I guess I won’t be using it anytime soon unless they quit reporting to consumer credit bureaus. She said “Many of our customers who have this card use it for personal reasons if not business”. Well enough said its a personal/business card that is treated like a personal card on your credit with MOST credit scoring models. A little $700 balance on that card would lower my Fico score and others I say no way. I owe $350 on it and it doesn’t ding my credit but they count my other regular cards. Are the credit bureaus messing up? No they are not if you owe thousands like I did before I had bankruptcy on my Citi and Advanta business cards and they reported that to the bureaus your in score troubles. If you want a good business card go with Chase or Citi. Stay away from Capital One business cards unless you just want it for a like they said “personal business card”.

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